The Nigerian currency remained relatively stable during the week’s first trading session despite persistent pressure from the dollar’s strength and stronger-than-expected U.S. economic data.
The naira was within the N1650-1660/$ range at the weekend in the unofficial market in major Nigerian cities.
The naira lost some strength against the greenback last week in the official foreign exchange market.
FMDQ data showed that the Nigerian currency dipped to N1,543 against the haven currency on Friday, down from N1,541.2/$ recorded on Thursday.
The greenback’s surge over the past few weeks has been a source of concern in Sub-Saharan Africa, particularly in frontier markets like Nigeria that are heavily dependent on imports. Expectations that interest rates will decline more slowly this year in the world’s largest economy were bolstered by payroll data.
Nigeria’s fiscal problems could worsen amid higher U.S. yields, making it more expensive to service Nigeria’s dollar-denominated debt. The popular U.S. 10-year Treasury note reached 4.73 percent last Wednesday, its highest level since April 25, amid reports that Trump considered declaring a national economic emergency to provide legal justification for a series of universal tariffs on both allies and adversaries.
Although Trump’s deregulation and tax cuts are expected to spur economic growth, investors are worried that the yet-unconfirmed tariff actions may trigger higher inflation in the world’s largest economy. A weak naira and rising debt-service costs could also put additional pressure on government coffers, restricting the options available for fiscal policy.
Persistently high U.S. exchange rates may worsen dollar shortages in the foreign exchange market, making the naira more volatile. Inflationary effects would result from this, raising the price of imports and raw materials, further taxing consumers and companies already struggling with growing expenses.
Strong Payroll Data Puts the Dollar at Its 24-Month High
The dollar index began Monday’s trading session in London on a strong note after reaching its highest levels since November 2022.
- The December nonfarm payrolls data was better than anticipated and was the main factor driving the greenback’s strength. The U.S. labor market remains healthy, and the jobs data raised concerns that the Federal Reserve will be even more motivated to gradually lower interest rates this year due to a solid labor market and persistent inflation.
- In addition, the dollar maintained its uptrend following the Fed’s minutes release last week. Policymakers agreed that inflation would likely continue to slow this year during the December 17–18 meeting, which acknowledged the growing risk that price pressures could remain sticky as they considered the possible impact of Trump’s policies.
- This Wednesday’s consumer price index inflation data is anticipated to be closely watched for additional clues on interest rate decisions. After the Fed’s December meeting minutes revealed that policymakers were becoming increasingly concerned about high inflation and a strong labor market, some Fed officials are also scheduled to speak this week.
Analysts at Goldman Sachs stated that they had previously predicted three interest rate cuts in 2025, but now only anticipate two rate cuts this year.
