The U.S dollar index was back on the front foot on Wednesday, making modest gains after earlier losses from renewed bets on Federal Reserve rate cuts this year, while the naira traded near its low amid high demand for the haven currency in Africa’s largest economy
At the NAFEM spectrum, the naira dropped to N1,416.57 per dollar from N1,354.21 per dollar on Monday, according to data from FMDQ
On the black market, the value of the Naira dropped from N1,410 per dollar on Monday to N1,415 per dollar on Tuesday.
Consequently, the rate differential between NAFEM and the parallel market dropped from N55.79 per dollar on Monday to N1.57.
Price action highlights naira short sellers have taken control in May, amid dwindling FX liquidity, as the bears station on the N1400 price support. The other reason is profit-taking among Nigerian naira holders who have started to move back to the greenback despite Economic and Financial Crimes Commission (EFCC) clampdown on currency traders in Abuja and Lagos.
The Securities and Exchange Commission (SEC), acting on behalf of the Federal Government, plans to delist the naira from all peer-to-peer cryptocurrency platforms to stabilize the country’s foreign exchange market amid the crackdown on digital assets traded through unofficial channels.
This move coincides with the FG’s increased efforts to combat dollar racketeering and exchange rate manipulation.
The nation’s financial watchdog stated certain entities manipulated the value of the naira and the exchange rate through the usage of P2P networks.
Emomotimi Agama, the recently appointed SEC DG, verified that the government was working on a new set of regulations to control the cryptocurrency industry.
U.S dollar index resumes bullish trend
The U.S. dollar index, which measures the greenback’s strength against the Japanese yen, Euro, British pound sterling, and three other major peers, rose by 0.14% to 105.5 index points, adding to Tuesday’s 0.3% advance.
Despite last week’s Non-Farm Payroll (NFP) data falling short of expectations, the price action indicates that the US dollar is likely to find support this week.
The dollar has continued its upward trend despite a weaker-than-expected jobs report and Federal Reserve officials’ attempts to allay talks of a rate hike.
Although the U.S. central bank has reinforced expectations that rates would likely drop by year’s end, investors are still closely monitoring it and the timing of Fed rate cuts, which will likely impact currency movements and further strengthen the greenback against most currencies, including the naira.
The amount of rate cuts priced into the market has not changed, despite Minneapolis Fed President, Neel Kashkari’s comments on Tuesday that it is premature to declare that inflation has stopped.
On Monday, additional Federal Reserve members reiterated statements made by Federal Reserve Chair Jerome Powell on Wednesday about the ongoing improbability of rate increases.
Interest rates will be lowered “eventually” by the central bank, according to New York Fed President John Williams, but he did not specify when.
Thomas Barkin, a top Fed official, also stated that the current interest rate environment is sufficiently restrained to cool the U.S. economy and return inflation to the central bank’s target of 2%. This week’s economic schedule is light, with the University of Michigan’s consumer sentiment index on Friday serving as the focal point.