The naira resumed the year on a negative note while the dollar index, which measures the U.S. currency against six counterparts closed the first trading session of the year positively.
The naira settled on Tuesday at N988.46 to the dollar compared to N907.11 quoted on Friday, the last trading day of 2023, while the naira depreciated by N81.35/$ after trading on Tuesday at the Nigeria Autonomous Foreign Exchange Market (NAFEM), according to statistics from the FMDQ.
The African Export-Import Bank (Afreximbank) injected $2.25 billion to alleviate the nation’s foreign exchange crisis, which seemed to have little effect as the Nigerian naira began the official trading year.
The FX market recorded low dollar liquidity as the daily market turnover declined by 82.78% to $15.38 million on Tuesday, the first trading in 2024 from $89.30 million recorded on Friday, the last trading day of 2023.
The markets anticipate that the naira’s rate of recovery will be determined by how soon and reliably confidence is restored, not by the marketing gimmick of the FG.
A genuine fiscal funding strategy based on specific revenue enhancements, such as a decrease in oil theft and the actual elimination of petrol subsidy, is what will stimulate the nation’s foreign exchange market.
Consequently, the latest price action shows a significant reversal in risk sentiment in global financial markets.
The greenback maintained most of its New Year gains on Wednesday morning as it stayed near a two-week high, underpinned by a confluence of factors including elevated U.S. Treasury yields and a cautious turn in risk sentiment that weighed on Wall Street. The dollar index had rallied by nearly 1% on Tuesday, which marked its best daily performance since March 2023.
The Federal Reserve’s dovish stance during its policy meeting in December of last year, which increased betting on U.S. rate reduction in 2024, caused a spike in risk appetite at the end of the year that devalued the dollar and spurred a rise in Treasuries and stocks.
In the meantime, the euro and sterling were suffering significant losses after recording their worst daily performance in months on Tuesday.
The USD gained strength on Tuesday as trading conditions returned to normal, and the yield on the benchmark 10-year US Treasury note increased toward 4%.
A busy week lies ahead for FX traders due to a plethora of economic data that will affect the market, such as European inflation data and U.S. data on job openings and non-farm payrolls.
Wednesday’s release of the minutes from the Federal Open Market Committee’s December meeting, which sets interest rates, is expected to shed more light on the central bankers’ perspectives on the possibility of an interest rate reduction.
