THE first week of January 2013 has witnessed the shilling losing grounds against the dollar on the back of the increased demand for the US currency from the corporate sector.

"As we commence a New Year we expect the shilling to continue its depreciation as business resumes. Low to medium volatility is expected in the market," stated the Standard Chartered Bank in its Daily Market Commentary.

Foreign exchange market on Monday this week that was the last day of the year 2012, saw the USD gaining strength versus the local currency, climbing by 5 shillings as market players snapped up the green back to meet month end and year end requirements.

"The local currency continued to lose ground against the greenback on the last day of the year to close at 1,578/1,598, with banks and corporate buying the hard currency while it is still cheap, expecting weakness in the shilling as January's dollar demand enters the market," stated the NMB e-market reports.

During the festive season, the shilling made strong gains against the declining dollar demand, receiving also strong support from the inflows of tax payments by corporate firms disbursed normally at the end of the quarter.