The shilling weakened in early trading Tuesday as importer demand started creeping into the market.
Commercial banks quoted the shilling at an average of 101.28/48 by midday, compared to Monday’s average of 101.05/25.
The currency has been enjoying a strong run against the dollar in recent days, nosing towards the 100 level on weak dollar demand.
Traders however said there was some renewed demand on Tuesday by corporates especially from oil importers, even as continued inflows from agriculture and diaspora remittances weighed in to ease the pressure.
“After a period of resilience, the shilling failed to preserve last week’s gains versus the greenback on account of increased dollar appetite… by corporates taking advantage of the relatively cheap dollar prices,” said Commercial Bank of Africa in a daily currency market note on Tuesday.
Overall sentiment however remains positive for the shilling, with a period of stability against the dollar predicted due to thawing of political relationship between the government and the opposition, which has signalled that the country is fully moving on from the acrimonious elections of 2017.
The easing of political antagonism bodes well for the economy with investors assured of stability, which in turn filters through to the currency by limiting the need by corporates to hoard dollars in fear of an exchange rate increase.
“We still hold our view of a trading band of 101.00 –101.30,” said Genghis Capital in a market outlook note on Tuesday.
Since the beginning of the year, the shilling has gained 1.95 per cent on the dollar, having opened the year at 103.30.
The exchange rate stability has also been helped by fairly balanced liquidity in the market for most of this year.