Uganda Shilling Weakens Amidst Middle East Tensions and Rising Dollar Demand

The Uganda Shilling faced significant pressure in July 2026, depreciating by 3.2 percent against the US dollar on a year-on-year basis. This weakening trend was largely attributed to renewed hostilities in the Middle East, particularly the conflict involving the US and Iran, which triggered bearish market sentiment.

Compounding these geopolitical concerns, demand for dollars surged from major industries including oil, manufacturing, and telecommunications sectors when compared to the same period in the previous year. The Bank of Uganda (BoU) reported an average exchange rate of Shs3,709.51 to the US dollar for July, indicating a 1.3 percent depreciation quarter-on-quarter.

Despite the overall depreciation, the shilling saw a minor gain of 0.2 percent against the dollar on a month-on-month basis. This slight recovery was bolstered by steady inflows from the mining and energy sectors, along with proceeds from agricultural exports and remittances.

However, this recent depreciation adds to a persistent pressure on the currency observed earlier in the year. In May 2026, the BoU noted a 3.0 percent year-on-year depreciation, linked to corporate dollar demand from manufacturing and energy firms amidst international uncertainty. The global strengthening of the US dollar also amplified these pressures.

Market analysts also pointed to capital movements ahead of the General Election as a contributing factor. Richard Nsubuga, acting head of trading at Absa Bank Uganda, explained that some offshore investors hedged their foreign exchange positions, leading to capital flight. The Middle East crisis further intensified this pressure from March onwards, with dollar inflows from remittances and exports proving insufficient to offset the strong demand for hard currency. Rising energy prices have also been cited as a factor impacting the currency’s stability.

Source: Daily Monitor (Uganda)