Upgraded.

This week’s FX developments have been shaped by positive domestic credit news, evolving global financing options, and ongoing inflationary pressures. With Investors keeping a close eye on Treasury actions and market responses, as these will determine the short- and medium-term direction of the KES.

Todays Highlights

• S&P upgrades Kenya rating from 'B-' to 'B'

• T-bill yields continue to trend lower

• Japan takes on China with cheaper loans plan for Africa

• Treasury seeks new debt to clear KES 51 billion loan due September

• Consumers brace for higher sugar prices on cane delivery crisis

• Treasury is eyeing Sh50bn from bond tap sale

USDKES

Markets received a confidence boost this week with credit rating agency S&P upgrading Kenya’s sovereign rating from B- to B. This signals improving creditworthiness, reflecting recent fiscal consolidation efforts. The upgrade, coupled with falling T-bill yields, points to renewed investor confidence in local debt and should help stabilize funding costs for the government.

On the external front, Japan’s cheaper loan plan for Africa adds an interesting layer of competition with China, potentially broadening Kenya’s financing options. This diversification could ease medium-term external vulnerabilities and support the shilling.

That said, near-term pressures remain. The Treasury must refinance a Sh51bn loan maturing in September, and is targeting Sh50bn from a bond tap sale. Successful issuance will be key to avoiding rollover risk, but any shortfall may inject pressure into local debt markets and spill over to FX.

Meanwhile, higher sugar prices from cane delivery disruptions are a reminder of persistent supply-side inflation risks. While food inflation is seasonal, it complicates CBK’s job and may limit room for further monetary easing.

In summary, the rating upgrade and easing yields are KES-supportive in the short term, improving sentiment among both local and offshore investors. However, upcoming debt rollovers remain a swing factor. Provided Treasury’s bond issuances are well received, we expect the KES to remain broadly stable, with room for mild appreciation against the dollar in the near term but depreciation to the 140 range is our medium term forecast going into 2026.

Our Take: Exporters and FX Hedging

We think exporters should explore locking in the current exchange rate incase normalcy resumes and USDKES resumes its trend lower as it has YTD. They should hedge by locking in a 2-3 week rate that we can provide. 

We enable businesses to lock in rates at a fraction of the value of the transaction.

USDX

In August 2025,The overall trend of USDX was a gradual decline from ~99.6 to around 98.4, with intra-month volatility between 97.7 and 99.1. Key influences included the shifting Fed rate expectations, political risk factors affecting confidence, and technical resistance near 100. Market outlook remains bearish with analysts widely expecting continued dollar pressure heading into Q4, barring any major change in U.S. policy or data.

Today’s Takeaway:

The KES has received a short-term boost from S&P’s rating upgrade and falling T-bill yields. However, exporters and investors should remain vigilant on upcoming Treasury debt rollovers and supply-side inflation pressures, which could influence the shilling’s stability. Hedging strategies remain advisable to manage potential FX volatility.