The Kenyan shilling has been receiving massive beatings from the US Dollar for the longest time, falling the lowest in history at the end of the month of January. And from the FXPesa report, there seems to be little to no hope for the local currency given the current dynamics.
In their inaugural monthly report, FXPesa says that the Kenyan shiling is set to continue losing to the dollar after the Fed hiked rates by 0.25 percent to reach 4.75 percent while the Central Bank of Kenya kept the rates steady at 8.75 percent.
Last year, the Fed started an aggressive sequence of rate hikes that saw US interest rates rise from a limit of 0.25 percent to 4.5 percent. This has the effect of strengthening the US dollar while pulling liquidity out of the markets.
The Federal Reserve will have its first meeting of the year on Wednesday, February 1st, and is projected to raise interest rates by 25 basis points, whose effects will trickle down to other currencies, including the Kenyan shilling.
Around the globe, major currencies have been on a strong start to the year against the dollar with the Australian dollar leading the gains with a 2.86 percent rally against the Dollar in January.
The UK pound has also rallied 1.95 percent against the dollar while the New Zealand dollar gained 1.31 percent against the US dollar. The dollar index (DXY) is down 1.23 percent in January having made volatile swings to a high of 105.38 in the first week of January and a low of 101.35 in the third week of January.
The Euro, Swiss franc, Japanese yen, Canadian dollar, British On 30th January, pound, and Swedish krona are all included, with the Euro carrying the highest weight.
Closer home, the Central Bank of Kenya (CBK) chose to retain rates at 8.75 percent citing that the previous rate hikes haven’t been fully felt in the economy. The CBK said it is watching the economy closely to determine whether there’s a need to make additional policy changes.
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From the monetary policy report, the CBK noted that December inflation had slowed to 9.06 percent with food inflation, which was a big concern, slowing to 13.8 percent from 15.4 percent the previous month.
“While the CBK chose a dovish stance on policy tightening, an aggressive Fed is expected to further stretch the USDKES exchange rate which has worsened from 123.5 to 124.5 in January.
A strong recovery in the DXY is likely to push the USDKES to 130 in February as demand for US treasuries continues to rise as a result of higher interest rates.” said the FXPesa Report.
The Euro was up 1.19 percent against the dollar year-to-date and could continue rising following the expected 50 basis point hike on Thursday which came to pass after the ECB decided to stay the course in raising interest rates significantly at a steady pace and keeping them at levels that are sufficiently restrictive to ensure a timely return of inflation to its 2 percent medium-term target.
Accordingly, the Governing Council decided to raise the three key ECB interest rates by 50 basis points and it expects to raise them further
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