The value of the naira eroded significantly on Tuesday at the P2P market and physical black market despite the injection of FX liquidity at the official market and a substantial clearance of FX backlogs by Nigeria’s apex bank.
On the P2P market, an unofficial market actively traded by crypto traders, retail investors, and speculators, the naira traded at about N1230/$ in the early hours of Tuesday from Monday’s rate of N1220/$. In addition, the exchange rate for a dollar to naira on the physical black market buy averaged at about N1,245 against the greenback on Tuesday.
The naira’s exchange rate in the black market has been drifting far away from the official market level despite the apex bank’s effort to clear outstanding foreign-currency amounts owed in forward deals.
The CBN recently stated that it paid about $2 billion in outstanding foreign exchange forwards in the last three months to clear a backlog of dollars, but currency traders at the unofficial market are currently unreactive to such development
The Naira, however, posted some gains against the US dollar at the official foreign exchange market on Monday. The Naira strengthened against the US dollar from N869.13 to N856.57 per dollar at the close of business on Friday, according to data from FMDQ. Comparing the local currency to the N869.13 per dollar it closed on Friday, this indicates a 1.45% rise in the country’s traditional market
On the macro side, the U.S. dollar index used to gauge the strength of major currencies maintained its range before key inflation data that is set to offer more market guidance towards the U.S. Fed monetary policy for this year.
Currency speculators maintain their grip on the haven currency on the global stage as investors continued to digest last week’s mixed U.S. economic data and looked ahead to key inflation readings for fresh clues on when the Federal Reserve is likely to begin cutting interest rates.
Mixed sentiments are highlighted by price action. This is because currency speculators are placing wagers that favour the US dollar due to the Middle East’s rising geopolitical tensions, which are exemplified by the Red Sea and Chinese weapons that Israel has discovered in Hamas storage facilities.
Conversely, speculators interpret the collapse of the ISM data last Friday as justification for the Fed to lower rates quickly. For the time being, markets expect geopolitics to take centre stage as long as fresh reports indicate rising tensions.
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