(Bloomberg) — Uganda’s shilling is expected to extend its slide against the dollar this month and in April as offshore investors holding domestic bonds move out of frontier markets due to the war in Ukraine.
The currency of the East African nation has weakened about 2% this month to as low as 3,630.84 per dollar, adding to a loss of almost 1% in February.
“The move was triggered by the war in Ukraine, which generated a global risk-off sentiment, forcing traders to start reducing their asset holdings in emerging and frontier markets and buying U.S. dollars,” said Ronald Sebakka Muyanja, head of foreign exchange trading at Stanbic Bank Uganda. The proportion offshore holders of local-currency treasury securities has dropped to 13.6% from 14.4% in January and is likely to decline further to 13% by the end of March. This translates to as much as $120 million exiting the market, Muyanja said.
The pressure will continue through April, particularly as the U.S. Federal Reserve tightens monetary policy, followed by the traditional dividend season in April, he said.