The Uganda shilling has started losing its strength against the United States
Dollar, in a reverse trend that had seen the local currency remain strong during
and after the lockdown period.
In a trend that surprised observers, the shilling held steady
when diaspora remittances, offshore investments and Tourism nearly went to a
halt between April and July.
Before the government closed most major sections of the
economy in March 2020, the US Dollar exchanged for 3,760 shillings before the
exchange rate fell to 3,680 shillings at the end of August.
Experts and traders then explained that the effect of the
low foreign exchange inflows were offset by the low demand for the
dollar, especially as travel out of the country as well as imports declined.
Over the last two weeks, the shilling has steadily lost
steam against the major currencies, with the dollar now up at 3,706.
The strength of the dollar is being attributed to the
revived economic activities since more sectors of the economy were opened
leading to higher demand for the greenback.
Absa Bank Uganda Foreign Exchange Trader, Corporate and Investment
Banking, Richard Nsubuga notes that there is increased coffee export earnings, but that industries are now demanding for more dollars for their increased activities,
as exhibited by the August Purchasing Managers Index.
// “Cue in: The Uganda shilling weakened due to….
Cue out:…. increased business activity in the economy.”//
Market players say there is so far no intervention from the
central bank, which seems confident that the current trend of the foreign
exchange is a reflection of the revival of the economy.
Mr Nsubuga says they do not expect the shillings to suffer
drastically in the next few weeks, as corporations will demand for the local
currency to clear their tax obligations.
// “ Cue in: We expect the shilling to trade stable…..
“Cue out: ….. excess pressure on local currency.’’//