The shilling registered its strongest appreciation in months, reversing a prolonged period of volatility due to sustained pressure from global economic uncertainty.
The unit strengthened significantly against the dollar during the week ending June 19, buoyed by a surge in foreign currency inflows from commodity exporters and offshore investors.
The local currency appreciated by about 3.3 percent against the dollar during the week, strengthening from an average market rate of Shs3,770 to Shs3,645 amid strong inflows and improved investor sentiment.
The gain marks the first major recovery for the shilling after months of depreciation and exchange-rate swings that had unsettled businesses and importers.
Market analysts attributed the appreciation largely to increased dollar liquidity in the interbank market, while demand for dollars remained subdued as many corporate entities focused on preserving shilling liquidity ahead of end-of-financial-year tax obligations.
‘The market experienced stronger-than-usual dollar inflows from both exporters and offshore investors, while corporate demand remained relatively muted,’ said Richard Nsubuga, the Absa acting head of trading.
Nsubuga said improving global risk sentiment also played a role, with investors responding positively to easing tensions in the Middle East following an interim peace agreement between US and Iran.
A stronger shilling offers a firmer currency, which lowers the cost of imports, but it could mean exporters face challenges if the currency continues to strengthen.
A sharp reversal
The latest gains come barely a month after the Ministry of Finance indicated that the shilling had weakened by 1.3 percent against the dollar in May, trading at an average mid-rate of Shs3,764.11, compared to Shs3,716.7 in April.
The Ministry of Finance monthly performance report indicated that the depreciation was driven largely by increased demand for dollars to finance higher fuel imports and freight charges amid ongoing geopolitical tensions in the Middle East.
The ministry also cited reduced foreign exchange earnings during April as a contributing factor.
Recent export performance has, however, supported an improvement in the foreign exchange position, with official data showing that Uganda’s export earnings increased by 24.3 percent year-on-year to $1.4b in April 2026, compared to $1.13b during the same period in 2025.
The growth was largely driven by higher earnings from gold exports, electricity sales, base metals and related products, oil re-exports, cement, cotton, beans, hides and skins, among other commodities. The strong export performance has increased the supply of dollars entering the economy, helping support the shilling’s recovery.
Liquidity remains high
The stronger currency coincided with abundant liquidity in the domestic money market. Throughout the week, commercial banks maintained comfortable liquidity positions, prompting Bank of Uganda to intervene through Open Market Operations aimed at absorbing excess funds from the financial system.
The Central Bank sold Bank of Uganda bills and conducted a seven-day repurchase agreement (repo) operation last Thursday to mop up surplus liquidity.
Nsubuga said overnight lending rates averaged 9.56 percent during the week, reflecting the elevated liquidity conditions, while yields at the Treasury bill auction last Wednesday remained largely unchanged.
Government accepted Shs266b in bids, with yields settling at 12 percent for the 364-day paper, 10.713 percent for the 182-day paper and 10.5 percent for the 91-day paper.
Oil prices ease
Another development likely to support the shilling is the sharp decline in global oil prices. Brent crude traded near $79 per barrel last Friday and was on course for a weekly decline of around 10 percent after the US-Iran interim peace accord restored confidence in energy supplies.
The reopening of shipping routes through the Strait of Hormuz and plans by Kuwait to increase production have eased fears of supply shortages that had previously pushed prices higher.
Lower oil prices could reduce Uganda’s fuel import bill and lessen demand for dollars in the coming weeks, providing additional support to the local currency.
Market participants expect the shilling to remain relatively stable in the short term, supported by continued export inflows and easing pressure from global energy markets.
Absa projects the local currency to trade within the Shs3,600-3,720 per dollar range in the near term.
While external risks remain, particularly regarding global interest rates and geopolitical developments, the latest appreciation offers a welcome sign of stability for an economy that has weathered months of exchange-rate volatility.