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Under-pressure shilling holds steady, seen vulnerable

22 May 2014, 13:54

Nairobi - The Kenyan shilling was treading water against the dollar on Thursday, with traders expecting the under-pressure currency to weaken in coming days due to negative sentiment towards Kenya and strong dollar demand.

The shilling has retreated about 0.8 percent in May, hurt by a spate of bombings in the capital Nairobi and along Kenya's Indian Ocean coastline popular with tourists who have left in droves after travel warnings by Britain and the United States.

On Tuesday, the shilling touched 87.95, nearing a two-and-a-half year low according to Thomson Reuters data.

"The market is consolidating after recent volatility," Commercial Bank of Africa trader Joshua Anene said.

At 0800 GMT, the shilling was at 87.85/95 to the dollar, barely changed from Wednesday's close of 87.80/90.

Traders say the shilling has also come under pressure in recent days due to the start of the dividend payment season, with Kenyan companies buying dollars to pay dividends to foreign investors.

Anene said the market is watching to see if there is enough momentum against the shilling for the to fall through 88, a key technical resistance level that is offering support to the local currency.

The shilling has also been aided by persistent liquidity mop ups by the Central Bank of Kenya (CBK). By draining excess liquidity the bank makes it more expensive for banks to hold onto long dollar positions.

"The CBK is helping the shilling but I don’t think it be strong enough to stop us crossing 88," Anene added.

- Reuters


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