Euro and pound gain as traders avoid US dollar

Kenyan shilling continued to drop against the British pound and the euro, as traders shun the US dollar, fearing that it might tank on the ongoing global trade war sparked by President Donald Trump’s administration.

On Thursday, the local currency traded at 171.79 and 142.20 units against the pound and euro, respectively, having shed close to a unit each compared to Wednesday’s trading.

According to data from the Central Bank of Kenya, the shilling has depreciated by 2.34 per cent and 2.4 per cent against those currencies this month alone, hitting a 13-month low.

The shilling, however, gained against the US dollar, with CBK quoting it at 129.46 units, almost 0.45 units lower compared to the quarterly average of 129.80.

Money market experts expect the trend to persist in the coming days as the world comes to terms with the US’s aggressive trade policies.

Barry Ogeto, a money market fund manager at a local financial institution, told the Star that although the US dollar still commands almost 70 per cent of the global trade, the recent reciprocal trade tariffs imposed by the US will have a huge negative impact on the greenback.

This is forcing traders to critically look at the future of the US dollar in the coming days, with other high-value currencies like the pound and Euro becoming more convenient options.

“All signs are there to be seen. This escalating global war has the potential to wipe out most of the wealth stored in the US dollar, fueling uncertainties like high inflation.’’

His counterpart at FX Pesa, Jude Mulee, is worried that although the situation favours Kenya’s exports in Europe and the UK, it is likely to hurt more local businesses who have saved their money in the US dollar.

“The declining value of the greenback will hit Kenya’s economy hard, considering that both the private sector and the government store wealth in US dollars. We will be monitoring the performance of the country’s forex reserves in the coming days,” Mulee told the Star on the phone. 

He, however, added that consumers are likely to benefit in the short term from cheaper exports, a move likely to ease inflation in the country.

The US Dollar Index, which tracks the performance of the US Dollar against six major currencies, trades lower, roughly 0.60 per cent at the start of the US trading session on Friday.