Uganda shilling weaker against the US Dollar, more losses seen 24-05-12

The Ugandan shilling lost ground against the dollar on Thursday, hurt by fears the euro zone debt crisis would continue to erode confidence in emerging market currencies and traders forecast more pressure for the local currency.

At 0747 GMT, commercial banks quoted the currency of east
Africa's third-largest economy at 2,486/2,496, a touch weaker
than Wednesday's close of 2,480/2,490.

"The market is very cautious ... the growing uncertainty in
the euro zone crisis is such that there's a lot of aversion to betting on riskier markets," said Robert Aloo, head of treasury at KCB Uganda.

"So unless the crisis in the euro zone eases substantially,
the outlook for the shilling is likely to remain clouded."

Traders said expectations Wednesday's Treasury bond auction
would buoy the shilling failed to materialise as most investors were local, according to a market report by Standard Chartered Bank Uganda.

Results released by the central bank showed heavy demand for
both the two and five-year papers on offer which spurred a slump in yields.

The yield on the two-year bond eased to 15.2 percent from
15.6 at its previous auction while the yield on the five-year
notes came in at 15.4 percent from 17.9 percent.

"We'll probably get some dollar conversions by offshore
investors but the amounts are too small to impact the shilling," said a trader at a leading commercial bank.
"Market sentiment is now majorly being driven by what's
happening in the euro zone and performance of Uganda's fellow
emerging market currencies."

The local currency, which is 0.4 percent weaker against the
dollar so far this year, plummeted to its 2012 low of 2,620 in March after it was hit by an unexpected rate cut and a slowdown in debt yields.

However, it is still way off its all-time record low of
2,901 against the greenback touched last September.

Reuters
24-May-2012