The naira settled marginally lower in the official market on Tuesday amid high demand for the safe-haven currency in global financial markets.
CBN data showed that the naira depreciated and settled at N1,538 against the greenback in the official market on Tuesday, compared to N1,536 quoted on Monday at the Nigerian Foreign Exchange Market.
The Nigerian naira held steady at N1,660 to the dollar on the black market.
The parallel market remained stable in contrast to the slight oscillations seen in the official FX market. This development shows that activity in the unofficial market is gradually adjusting in the new year.
The naira experienced its worst decline in 2024, falling to N1,910/$ in the black market in February, despite trading at roughly N1,700 in the official window. The local currency lost more than a third of its value this year due to the federal government’s drastic currency reforms, which included floating the currency.
The local currency experienced a significant recovery following the implementation of the Electronic Foreign Exchange Matching System (EFEMS), gaining more than N120/$ in value within a month. The CBN adopted the EFEMS strategy as part of a set of changes meant to curb speculation and improve transparency in Nigeria’s foreign exchange market.
U.S. Dollar starts the new year on a strong foot
The greenback showed high stability on Wednesday, bolstered by high Treasury yields following solid economic data from the world’s largest economy.
- The economy remains robust, but there are indications that inflation risks are returning after data revealed that the U.S. has a healthy labor market.
- According to the Job Openings and Labor Turnover Survey (JOLTS), there were 8.09 million openings in November, more than the 7.83 million in October and the 7.7 million estimate.
- The downside for the dollar is limited amid high safe-haven demand, driven by geopolitical tensions and possible trade war flare-ups.
- The Fed is expected to reduce borrowing costs by 37 basis points by the end of 2025. However, the first cut is not fully priced in until July. In contrast, the markets are pricing 99 basis points of easing from the ECB this year.
The safe-haven currency maintains a bullish structure, with technical indicators continuing their upward trajectory.
The dollar index demonstrated strong underlying support by successfully defending its 20-day Simple Moving Average (SMA).
- If there are no significant risk reversals, the index may remain high due to continued demand for U.S. assets and higher yields, even though short-term overbought signals could cause slight pullbacks.
- Investors will analyze data for the short term to determine when the Fed will next lower rates, with a focus on the payrolls report due on Friday.
- After rising by 227,000 jobs in November, non-farm payrolls probably added 160,000 jobs in December, according to a Reuters survey.
The market continues to lower the pricing on possible rate cuts this year amid a slowing but not collapsing jobs market, high inflation concerns, and respectable growth.
