The haven currency enjoyed some strength before Federal Reserve Chair Jerome Powell’s address, but the naira witnessed a slight fall during the opening trading session of the week.
The native currency fell for ninety days after it crossed the N1,525/$ support line on the black market.
The Nigerian Autonomous Foreign Exchange Market (NAFEM) reported that the naira fell by about N14 to trade at N1,523/$1, compared to the exchange rate of N1,509/$1 on Friday, July 5, 2024.
The increased demand from importers and travellers amid summer vacations has elevated pressure on the local currency market.
Instability, depreciation, and a lack of dollar liquidity have also made Nigeria’s apex bank efforts to strengthen the currency more difficult despite an uptick in the country’s FX assets.
The naira was the worst-performing currency in the world at the end of the first half of 2024.
According to S&P Global, Nigeria’s foreign exchange problem and the pressure it puts on the local currency can be resolved while simultaneously advancing economic development through the Dangote Oil Refinery and Petrochemicals company.
U.S. dollar index maintains a bullish trend
Powell’s testimony is expected to provide more details on this trend later today. In addition to Powell, other Fed officials are scheduled to speak later this week.
The dollar index and dollar index futures saw a minor uptick in London trade, stabilizing following a week of sharp losses due to growing bets on a Fed interest rate drop.
The US 2-year yield, which most accurately gauges Fed rate expectations, dropped below the critical 4.70% support level after last week’s worse-than-expected US jobs report.
For the yield to stabilize and continue declining, Powell must give a sufficiently dovish speech.
The market is pricing in two rate cuts from the Fed this year, with a growing likelihood of one in September (almost 80% before Powell’s testimony).
Since the beginning of the month, the US Dollar Index has been under pressure, and Powell’s dovish remarks could cause it to drop much more now that the safe-haven flows brought on by the political dangers in France are over.
The US dollar index has been on a bullish run since the beginning of 2018, further adding pressure on frontier currencies like the Nigerian naira.
The US dollar index is still in the bullish trend that has been developing since the beginning of the year. At its present levels, the significant 38.2% Fibonacci retracement of this year’s rebound, at 104.20, provides crucial support to the positive trend of the year.
Should the US dollar index drop below this level, the main peers should be supported, and the index should enter a medium-term negative consolidation zone.