The Uganda shilling reversed course and slightly strengthened as end month flows gave support amid subdued demand. The unit traded below the 3800 level for the first time in months. The shilling appreciation bias was expected to be short lived as economic variables in particular inflation painted a bleak picture going forward.
In Kenya, the currency took a hit, trading at a fresh record low trading above 120, undermined by elevated demand from oil importers.
In the bond market, upward pressure on yields took center stage as markets players slammed huge risk premium on the prices. The worsening fiscal outlook was evident as government signaled commercial borrowing for budget support. The announcement ndrove bids even higher yielding at 16.749% and 17.500% for 2- and 15-year bonds.
In global markets, the US dollar paused slightly and thereafter gained strength following the Fed oversized rate hike, bringing the benchmark rate to a new target of 3.75% to 4%, the highest since January 2008. Going forward the dollar is expected to strengthen into the first half of 2023 as the Fed continues its tightening stance.
Forecasts indicate that the shilling will remain under pressure from both domestic and external headwinds for the remainder of the year, however pockets of on and off cyclical remittances may help to reduce the impact.
