CEEMEA Economics & Strategy Daily: A New USD Environment for EMFX, Uganda Strategy, Czech CNB meeting minutes

Research evidence excerpt

CEEMEA Economics & Strategy Daily: A New USD Environment for EMFX, Uganda Strategy, Czech CNB meeting minutes

X

movement).

During risk-off episodes, pressure typically seeped into the FX more than rates

due to hedging and liquidity abilities (in the last episode yields adjusted higher by

100bps while UGX depreciated by 5%). Hedges were put on during the Iran conflict

and spot widened to 3800 as liquidity thinned and the bid-offer spread widened.

Meanwhile, when selling pressure emerged in the rates market, large local

institutions showed opportunistic bids that contained yields. We have since seen a

move towards convergence in the deliverable and NDFs without BoU intervention,

evidencing improved market depth and reduced offshore hedging activity. We see

FX levels below 3550-3600 as a range that should encourage hedging and 3800

as a good entry level.

Over the next 6-9 months, we see the trade as more of a carry trade than a

compression trade. In the last 12month, we are of the view that BoU seemed to

prefer high yields to manage FX, while the debt office has become noticeably more

disciplined, rejecting expensive bids at auction and pushing yields down from a

peak near 18% to 16.5% at the last 20-year auction.. However, this could change in

the new FY following a meeting between Finance Minister Musasizi, BoU Governor

Dr. Michael Atingi-Ego and senior BoU officials on Wednesday where they

discussed stronger coordination between fiscal and monetary policy including

fiscal consolidation, prudent public spending and measures to support the

effectiveness of monetary policy and macroeconomic stability (UBC, June 25

2026). This could result in a cap in issuance cut-offs or an increase in drainage of

excess liquidity. Maturities into July (~UGX 6.5tn, roughly 2x the auction