Forex experts said it was a buyer's market for the US dollar against the shilling during the week ending Jan. 18.
Stephen Kaboyo, the managing director for Alpha Capital Partners said the shilling strengthened and almost breached the support level of 2650 on the back of continued interbank selling amidst very tight liquidity conditions.
He said the major market players were cutting long dollar positions to address the shilling scarcity in the first week of the cash reserve requirement cycle to maintain adequate averages ahead of what is expected to be a continuation of tightness in the shilling market.
He said Bank of Uganda's open market operations during the week were mostly on the injection side with reverse repos aimed at propping up the shilling liquidity. Kaboyo said the market expectations indicate that as long as the liquidity remains tight, the shilling will trade in a narrow range and hold at the levels of 2650/2675 in the coming days.
"In the short to medium term, unfavorable fundamentals and the less impressive non fundamentals will continue to drive the shilling into bearish territory," he said.
Standard Chartered Bank said in a statement that the market saw muted activity as major players focused on mid month tax payments leading to thin liquidity. The debt market remained quiet with few trades going through as investors cited liquidity constraints.
"Next week we expect the shilling to remain stable biased towards a depreciation," the bank said, adding we expect the 2655-80 narrow range to hold as activity picks up.