The Kenyan shilling has experienced significant fluctuations against the US dollar following the inauguration of President Donald Trump, reflecting wider global economic uncertainty and evolving policies that have influenced currency markets.
As of January 23, 2025, the exchange rate of the Kenyan shilling stood at KSh 129.28 per US dollar, a slight dip from KSh 129.54 recorded a week earlier. However, by January 24, the currency appreciated marginally to KSh 129.26, showing some resilience in the face of challenges.
This period of volatility coincides with a decrease in Kenya’s foreign exchange reserves, which fell from $9.14 billion (KSh 1.18 trillion) on January 16 to $8.65 billion (KSh 1.12 trillion) by January 23. According to the Central Bank of Kenya (CBK), these reserves are adequate to cover 4.4 months of import needs, aligning with the statutory requirement to maintain at least four months of import cover.
The drop in reserves poses a challenge for the shilling, which depends on foreign currency to stabilize the local economy, especially in financing critical imports such as fuel and cooking oil. With forex reserves on the decline, there is heightened demand for the US dollar, which could put additional pressure on the local currency.
Rufas Kamau, Lead Market Analyst at FX Pesa, noted that although the shilling remains stable, it could face some strain as foreign investors repatriate profits from the Nairobi Securities Exchange (NSE). He warned that Kenya’s monetary tightening policies, coupled with ongoing fiscal adjustments by Parliament, could lead to economic slowdown, further complicating the outlook for the shilling.
“While the shilling is holding steady, there is potential for slight depreciation, particularly as foreign investors repatriate earnings from the NSE. The CBK’s tighter monetary stance, alongside fiscal tightening measures, could push the economy closer to recession,” Kamau told TUKO.co.ke.
On the global front, US President Donald Trump, who assumed office on January 20, has made bold statements regarding the US dollar, threatening tariffs on countries that undermine the currency’s strength. Trump expressed concerns over the growing influence of foreign currencies, particularly those from nations seeking to challenge the US dollar’s dominance.
Despite these concerns, the dollar’s global influence remains significant. The International Monetary Fund (IMF) reports that the dollar currently accounts for 58% of global foreign exchange reserves, a decrease from 67% in 2000, indicating some diversification but no immediate threat to its position as the world’s reserve currency.
The dominance of the dollar continues to shape the fortunes of many nations, with fluctuations in its value having far-reaching consequences on economies worldwide. As Kenya navigates these challenges, the future of its currency remains closely tied to both domestic policies and global economic trends.
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