KAMPALA: The Ugandan shilling lost ground on Thursday on the back of increased dollar demand from commercial banks covering short positions but mid-month tax payments were expected to cushion it, traders said.
At 0922 GMT commercial banks quoted the local currency at 3,520/3,530, weaker than Wednesday's close of 3,510/3,520.
"Appetite by banks is continuing to weight strongly on the local unit," said Shahzad Kamaluddin, trader at Crane Bank.
Kamaluddin said the wave of dollar buying that begun on Monday as banks sought to cover short positions was at its tail end.
"When you consider that we're also approaching mid-month taxes, I think we'll see a slowdown in the pace of (shilling) weakening," he said.
Tax payments lend support to the shilling because companies offload dollars to pay their local currency-denominated dues.
The shilling has given back most of its gains made last week, as short position covering by banks and speculation over a possible hike of interest rates by the US Federal Reserve put the local currency under pressure.
Most traders expect the shilling to trade on a weak footing in the coming months, its outlook clouded by concerns over possible instability ahead of a presidential election on Feb. 18, and surging fiscal and current account deficits.
So far this year, the shilling is 21.4 percent weaker against the greenback.
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