After an event-packed week of central bank decisions, the naira’s bullish run defied the dollar’s strong momentum.
A few dovish surprises from other central banks, coupled with strong U.S data yesterday, helped to support the U.S dollar.
The local currency saw significant gains on the official and unofficial foreign exchange markets the day before the naira’s gain. On Wednesday, it closed at N1,400 per dollar on the black market.
The CBN recently announced that it had successfully settled all legitimate foreign exchange backlogs, settling $7 billion in inherited claims.
The information was provided in a statement that was mailed by Hakama Sidi Ali, CBN’s acting director of corporate communications.
The remaining amount of the FX backlog was cleared when the CBN finalized the payment of $1.05 billion to settle obligations to bank customers.
To increase credibility and confidence in the Nigerian economy, the CBN chief emphasized how important it is to clear the FX backlog.
The Presidency, via its spokesman, issued a warning to currency speculators, threatening to burn their fingers if they committed acts of patriotism against the naira
Consequently, the greenback was poised for a second week of broad gains on Friday, as the naira continued to appreciate against the US dollar on Thursday, to settle at 1,382/$ at the official market.
For the second week in a row, the dollar index has increased, rising 0.8 percent to 104.095 index points.
Even a rate hike in Japan could not stop the dollar’s march, and an unexpected cut in Switzerland highlighted the difference in interest rate settings between the US Federal Reserve and its global peers.
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The dollar gained strength on Thursday due to the Bank of England’s dovish outlook, which caused traders to dump the pound in favor of the dollar.
The Fed revised its forecast for growth in 2024. Although it is still anticipated that the central bank will start lowering interest rates by June, the dollar is predicted to gain from its relative hawkishness when compared to other central banks.
The dollar has found strong support since some US data sparked a USD/risk-off rally yesterday afternoon. For the first time in the past two years, the Leading Index showed a positive month-over-month figure, most likely due to the robust performance of the equity market and a weather-related increase in the average workweek.
The number of existing homes sold unexpectedly increased from 4 million to 4. 4 million. Given the decline in mortgage applications, the consensus was natural for a decline. The S& P PMIs, which were also released yesterday, revealed somewhat softer services but strong manufacturing resilience.
The Federal Reserve maintained its forecast for three rate reductions by year’s end and kept the funds rate on hold this week, fluctuating between 5.25 and 5.5%.
However, it added that it won’t act until it is more certain that inflation is steadily declining toward 2%. This year’s cutbacks are now priced in at about 80 basis points, down from the 160 or so that were anticipated at the beginning of the year.
The two hawkish committee members who had previously voted for a hike in interest rates supported the Bank of England’s decision to keep rates unchanged, which caused sterling to drop overnight. Sterling lost 0.7 percent on the week and reached a three-week low of $1.2635 during the London trading session.