The shilling Tuesday recouped its earlier losses on the dollar to trade at 89.70 from 90.70 at the opening of trade on depressed dollar demand and foreign currency inflows from tea and donor support to non-governmental organisations.
The next monetary policy meeting on December 1 could shape the next direction of the currency.
Traders said that the current momentum of the shilling appreciation could be sustained if Central Bank of Kenya does not change the current interest rates.
"We expect CBK to leave the borrowing rates unchanged since the current inflation is just but a product of last month's imports," said Duncan Kinuthia, a senior trader at the Commercial Bank of Africa.
Inflation increased to 19.72 per cent in November from 18.91 per cent last month according to figures released Tuesday by the Kenya National Bureau of Statistics (Knbs).
Dealers also said that banks were unwinding their dollars as the currency strengthens. "It is no longer viable to hold excess dollar as the currency gains the dollar," said Robert Gatobu, a trader at Bank of Africa.