The local unit started the week on a strong footing, supported by dollar inflows from commodity exporters and dollar sell-off by interbank players as corporate demand continued to lie low.
The shilling closed the session trading at 3700/3710 – stronger than the day’s opening of 3705/3715. The shilling is expected to trade stronger within 3650–3740 levels in the near-term supported by commodity inflows and tight liquidity in the money markets amidst subdued corporate demand.
According to Richard Nsubuga, Trader, CIB Markets at Absa Bank Uganda, money markets opened the week tighter with overnight funds averaging 11.89 per cent at the end of Monday’s session, while one-week trades averaged 12.06 per cent. We expect the tightness to continue in the near term.
In the region, the Kenyan shilling opened the week trading relatively stable within the 123.00-128.00 range with corporate demand persisting. The unit is expected to continue trading within this range in the coming days.
The dollar weakened sharply against a basket of major currencies on Monday, testing the 103 mark for the first time since last June in a mix of expectations that the Federal Reserve could soon slow down the pace of its monetary policy tightening.
“On Friday, weaker-than-expected ISM manufacturing and services data fueled concerns about a recession, which, combined with the payrolls report showing slowing wage growth, pointed to a less aggressive tightening stance from the US central bank. Now, all eyes are on the CPI report, due on Thursday, for further clues about the Fed’s next move,” Nsubuga said.
The euro edged higher to $1.07 in the second week of January, getting back to seven-month highs. Fresh economic data for the US including the jobs report weakened the dollar-increasing bets and the Fed will deliver smaller rate increases going forward. Also, price pressures eased more than expected in Europe, with the annual inflation rate in the Eurozone hitting a four-month low.
He said the British pound traded above $1.21, as investors continued to assess the outlook of monetary policy for the Fed and the Bank of England. The BoE has indicated that its tightening path could soon end as inflation has peaked and a recession in the British economy is imminent. Also, a warmer winter in Europe has led to UK’s natural gas contracts lingering at their lowest since June, significantly easing inflation expectations.
The WTI crude futures jumped over 3 per cent to above $76 per barrel on Monday, rebounding further from a nearly one-month low of $72.5 touched last week on hopes for a recovery in demand from China. OPEC crude production rose in December, led by a recovery in Nigerian supply despite the cartel’s agreement to cut output to support the market. Brent topped at $81 per barrel.
Gold continues to benefit from the dollar’s weakness, rising to an eight-month high of $1,880 per ounce on Monday after the ISM data showed an unexpected contraction in the US services sector activity.
Source: The Observer
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