The shilling fell nearly 1 percent, the biggest intraday fall since Oct. 26. The local currency has lost 1.5 percent this week, although it remains well above a record low of 107 in October before an aggressive tightening of monetary policy.

At 0730 GMT, commercial banks posted the shilling at 84.90/85.10 to the dollar, 0.9 percent weaker than Wednesday's close of 84.15/25.

"Banks are squaring positions ahead of the new year," Sameer Lagadia, head of trading at Diamond Trust Bank said.

"There was also a weakening of the euro affected by poor liquidity towards the year-end in the eurozone."