Throughout history, currencies have flowed in value to show how the economies of different countries are changing and the dollar is no different.
Today, the once-dominant US dollar is falling against the Kenyan shilling causing a lot of uncertainty for both investors and regular Kenyans.
This situation has prompted us to take a closer look at what is causing this kind of change and what it means for people who have dollars in their wallets.
The continuous depreciation of the dollar has left many in the forex business and investors thinking about their financial strategies. Both seasoned and new investors wondered whether selling their dollars is the right move as the shilling rocketed to its strongest level since June 2023.
At one point on Thursday, February 15, the shilling experienced a nearly eight percent increase with bids reaching as high as 139.00 against the US dollar.
The Kenya Times spoke to Financial Experts and Investors to breakdown the reason for the fall and learn whether selling the dollar is a good idea.
Why the Value of the Dollar is Falling
According to Economist Vincent Kimosop, there are several factors in play that have led to the drastic drop in the value of the dollar. However, a huge factor is the successful pricing of a new Ksh233 billion ($1.5 billion) Eurobond.
“It’s a positive reaction to the market. The dollar is regaining its original value,” he stated.
His view was backed by Ronald Nono, an experienced Forex trader and Investor, who opined that the fall was a result of closed deals by the Kenyan government, including the Eurobond that have eased pressure on the Kenyan shilling.
Additionally, Ronald said that President William Ruto had to be credited for the deals signed by the Kenyan government as it may have been his strategy to ensure that the shilling regained its value and investors stayed in the country.
Also Read: Details of Ruto’s New Ksh233 Billion Eurobond Debt Revealed
“In dealing with the financial market we have the fundamental side which is the megadeals that are currently being done in Kenya and maybe outside Kenya. This could include the Eurobond.
“A threat to the US dollar is the Chinese Yuan or the currency of the Arabian countries. These currencies are a bit more stand-alone therefore their investment in the country would mean it will devalue the dollar in Kenya,” he said.
At the same time, the Chairperson of the Presidential Council of Economic Advisors David Ndii affirmed that indeed the strengthening of the shilling was influenced by the new Eurobond deal.
“Markets have opened. Eurobond default risk has evaporated. Speculative dollar positions unwinding,” he said.
Additionally, data from the London Stock Exchange Group (LSEG) note that the surge was driven by foreign investments in Kenyan domestic debt and the successful resolution of a $2 billion Eurobond set to mature in June.
Will it Continue Falling and Should You Sell
According to Ronald, the dollar will likely continue falling until it regains its original value.
This, he noted may be a positive or negative effect because although the weakening of the shilling was not good for the Kenyan economy, it was good for businesses that deal in the dollar.
“I do not believe that it will go back to where it used to be now that it has started falling. It is not common for a currency like the Kenyan shillings to gain about 10 points in a day.
Also Read: Truth Behind Kenyans Rushing to Sell Dollars at NCBA
“Those in the forex business are controlled by fear and greed and that is why they are rushing to sell their dollars. No one want to be poor, so everyone wants to buy back the shilling that they had ignored,” he noted.
On the flip side, he said that there was also a possibility that the dollar could regain its value or rise to a higher level than it had been before the fall.
“The currency could even make another high that is higher than where it was because the dollar is still in the upward trajectory,” added Ronald.
At the same time, Kimosop noted that many speculative investors had held on to the dollar in hopes that the government would not be able to repay the Eurobond forcing the government to even trade at a higher rate.
However, because of the change in tides, those who had stored their dollars will be in a rush to sell.
“Those who had stored currencies in dollars, there will be a rush to sell. People know that in the long run there will be stability. Any quick rush to offload the currency will lead to the continuous fall and stability,” he noted.
