Standard Chartered Bank has said the shilling recovered to trade 2680/90 against the dollar during the week ending on Jan. 11 compared to the last weeks' close of 2710/20.
The bank said in a statement released on Jan. 11 that the marginal appreciation came at the back of subdued corporate demand with sizeable inflows from the agriculture sector.
"Also the liquidity squeeze in the cash markets after Central bank issued treasury bills where yields inched up by about 20 basis points led to the local unit gains," it added.
The bank expects the shilling to hold on its gains trading in a narrow range of 2675-2700 next week.
"We expect activity in the debt market to remain muted with no primary auction next week and investor appetite still low in the secondary market."
The shilling was recently hit by market sentiments after donor countries suspended aid to Uganda following corruption scandals reported in the office of the Prime Minister.
The unit has also been affected by continued easing of interest rates by the central bank which has partly seen many offshore investors quit the Ugandan market.
The central bank kept the central bank rate at 12.0% in January, the same as that of December arguing core inflation would remain in targeted levels of 5.0% throughout the New Year, 2013.