At 0924 GMT commercial banks quoted the shilling at 2,465/2,475, stronger than Wednesday's close of 2,475/2,485.

"The pick up in dollar demand that we've seen over the last two days has come off and driven the shilling up again," said Faisal Bukenya, head of market making at Barclays Bank.

The currency of east Africa's third-largest economy has been oscillating in the 2,460-2,500 range for about three months but analysts say the ongoing cycle of monetary policy easing is likely to put it on the ropes over the next several months.

Bank of Uganda has so far cut its benchmark central bank rate for two straight months - it now stands at 19 percent - and signalled it is prepared for further policy loosening to stimulate slowing economic growth.

A pick-up in economic activity would potentially spur an upsurge in greenback demand and weaken the local currency for the import-dependent economy.

"We'll continue to witness a rangebound shilling (against the dollar) until demand for the dollar is able to recover sustain ably," said a trader at a leading commercial bank.

"And for that to happen it will need several months of continuous easing."

Bank of Uganda is due to announce its key lending rate for August next week after the release of the latest inflation data.

Analysts expect low food prices are likely to cool inflationary pressures again and give the central bank room further policy easing.

Some market players also say typical end of month dollar conversions by charities looking to pay shilling-denominated salaries might lend the local currency some slight support.