The shilling closed yesterday stronger against the dollar continuing a recovery streak since it stabilised at the close of last month.
The unit had threatened to weaken further in November last year but stabilised as the year closed.
As of yesterday it traded at Shs3,685 and 3,695 buying and selling, respectively against the dollar.
However, the recovery continues to be weak as the unit had shed off much value since April last year.
Mr Stephen Kaboyo, the Alpha Capital managing partner, a market analyst, attributed the appreciation to the underlying fundamentals largely on account of low demand.
"Business activity, especially on the import side has not picked up since Christmas," he said, noting that the appreciation might be temporary.
Uganda imports more than it exports, recording a trade deficit of $319.6m (Shs1.1 trillion), according to data released in November of 2018
The country mostly imports oil (24 per cent of total imports) followed by pharmaceutical products and capital goods. Uganda mainly imports from Kenya, UAE, China and India.
Mr Everest Kayondo, the Kampala City Traders Association chairman, said the appreciation could be a result of returning Ugandans who were in the country for the festive season.
"Most Ugandans who return for holidays return with money to buy properties," he said.
Mr Kelvin Kiyingi, the Bank of Uganda acting director for communications, said the appreciation might be a result of low inflation.
"Typically, a country with a consistently lower inflation rate exhibits a rising currency value," he said.
The shilling, between April and December last year, weakened by at least 7.8 per cent.