(Nairobi) – The Kenyan Shilling weakened slightly against the US Dollar on Thursday, dropping to 129.3507, its lowest level in three months. This was a result of increased demand for the dollar on the global market, which outweighed the local supply. The dollar’s rally, which has been ongoing since President Trump’s victory last week, has contributed to the Shilling’s decline.
The Central Bank of Kenya (CBK) reported the Shilling at 129.3507 on Thursday, a decrease from the previous day’s 129.25. The stronger dollar, which has been gaining ground globally, is part of a broader trend that saw the dollar index, which measures the value of the US Dollar against a basket of other major currencies, reach a one-year high, surpassing the 106.5 mark. This strong demand for the US Dollar has been a key factor in the weakening of the Kenyan Shilling.
A trader interviewed by Reuters on Wednesday noted that the global demand for the dollar has been rising, as investors are beginning to buy dollars in order to repatriate them back to US markets. This trend has been particularly noticeable following President Trump’s victory, as his administration’s policies, including higher trade tariffs and tighter immigration controls, are expected to influence inflation rates and the US economy in the long term.
The Kenyan Shilling, despite the recent dip, has remained relatively stable compared to other global currencies, which have experienced higher volatility. This stability has been attributed to interventions by the Central Bank of Kenya (CBK), which has been actively purchasing foreign currency to curb excessive volatility in the exchange rate. The CBK currently holds US$9.3 billion in foreign exchange reserves, the highest level in three years. This reserve is enough to cover 4.8 months of imports, comfortably above the required minimum of 4 months.
The US Dollar’s strength has been felt across global markets, with major currencies such as the Euro, Japanese Yen, Chinese Yuan, and the British Pound all weakening against the greenback. The South African Rand, for example, hit a three-month low, trading at 18.25 against the dollar. The Euro and Sterling Pound also saw losses, with the Euro weakening to 2023 levels and the British Pound edging down to a three-month low at US$1.26920.
In the broader context, President Trump’s incoming administration is expected to impose higher trade tariffs, which are likely to reduce US demand for foreign goods and services. This could, in turn, reduce the US trade deficit, fueling inflation in the US. The inflationary pressures may slow down the Federal Reserve’s efforts to cut interest rates, further boosting the value of the US Dollar.
The Central Bank of Kenya is expected to make a key monetary policy decision in December, after the country’s annual inflation rate fell to 2.7% in October, the lowest in 12 years. This is slightly above the CBK’s preferred target of 2.5%, but still within a favorable range. The Bank’s actions, including its foreign currency interventions, are seen as crucial in maintaining the stability of the Kenyan Shilling amid global economic fluctuations.