On Thursday, Bank of Uganda (BoU) bought an unspecified amount of dollars after the shilling climbed sharply in early morning trade.

At 0820 GMT commercial banks quoted the local currency at 2,375/2,385, slightly stronger than Thursday's close of 2,380/2,390.

"Going into next week we still anticipate a buoyant shilling," Faisal Bukenya, head of market making at Barclays Bank Uganda, told Reuters.

"The market will still be influenced by softening business activity, which means low dollar demand against significant inflows from overseas Ugandans coming for holidays," he said.

The shilling has gained steam against the dollar since hitting an all-time record low 2,901 in late September.

According to Thomson Reuters data, the shilling has gained 7.2 percent in December and is now 1.6 percent down against the dollar in the year to date.

BoU attributes the shilling's strong rebound to a four-month monetary policy tightening run that was paused this month when it left its key lending rate at November's 23 percent.

The pausing followed a slowdown in the country's inflation rate to 29 percent year-on-year in November from 30.4 percent in December.

Stanbic Bank said in a report the shilling would trade in the 2,340/2,390 range on Friday while traders said the local currency would oscillate between 2,365-2,395 range against the dollar next week.

"The shilling will probably come under pressure again early January when fuel firms and other big dollar buyers return to the market," said a trader at a leading commercial bank.