Understanding the Kenya Shilling’s Recent gain against US Dollar

Forex Exchage Kenya

The Kenya Shilling has witnessed a remarkable ascent against the US dollar, fueled by local investors’ shift away from dollars amid perceptions that the greenback shortage has eased.

– The Central Bank of Kenya (CBK) closed forex markets with an exchange rate of KSh 153.2039, marking a notable uptick from the KSh 160.0000 range observed in previous weeks.

– Commercial banks quoted rates below KSh 153.75.

– Wednesday’s surge propelled the local currency to its strongest level since November 2023, erasing all exchange losses incurred in 2024.

The Kenya Shilling’s rally against the dollar gained momentum following the successful Eurobond issuance. Thursday’s surge marked the most significant single-day gain in 16 years, as local investors divested US dollars.

Charlie Robertson, Head of Micro Strategy at FIM Partners, commented on the forex market’s dynamics, highlighting a sense of panic among speculators witnessing the Kenyan shilling’s strength.

The CBK, previously noting the currency’s overvaluation in 2023, intervened to address currency volatility amid Thursday’s significant swing. Despite assertions that the exchange rate had exceeded the Kenya Shilling’s fair value, the CBK’s intervention aimed to stabilize currency fluctuations.

Analysts at Standard Investment Bank attributed the Shilling’s strength to an influx of USD, altering demand-supply dynamics in favor of the Kenya Shilling. Speculative dollar hoarding further exacerbated the trend.

Commercial banks quoted the Shilling at 145.00/146.00 to the U.S. dollar, reflecting a more than 3% increase from Wednesday’s closing rate. At one juncture, the Kenya Shilling rallied nearly 8%, reaching a bid as strong as 139.00 to the U.S. dollar.

Analysts linked the surge to speculative activities following forex inflows into domestic debt and the resolution of a $2 billion Eurobond maturing in June 2024. Additionally, Kenya’s issuance of a new $1.5 billion Eurobond, alongside a KSh 70 billion infrastructure bond, garnered significant investor interest.

FIM Partners anticipates the Kenya Shilling to stabilize soon, suggesting a rate around 150/$ aligns with economic fundamentals. Dr. Chris Kiptoo, National Treasury PS, cautioned forex dealers against speculative attacks to maintain market stability.

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