The Nigerian naira experienced fresh pressure in the foreign exchange (FX) market last week despite the Central Bank of Nigeria’s (CBN) efforts to stabilize the market, depreciating against the dollar as demand for FX continues to exceed supply.
The official exchange rate closed at N1,475/$, down 1.37% week over week at the Nigerian Autonomous Foreign Exchange Market (NAFEM) window.
The naira experienced a slight depreciation as well, dropping by 0.61 per cent to about N1,484/$ on the parallel market, which is frequently thought to be a more accurate representation of real-time supply-demand dynamics.
Regular inflows of oil revenue improved non-oil foreign earnings, and a robust trade surplus position was largely responsible for this gain. These factors have all worked together to support the CBN’s FX market interventions and act as a buffer against outside shocks.
Improved external sector fundamentals continue to support the broader macroeconomic framework, despite market concerns, as indicated by the increase in reserves.
However, oil declined throughout the week, which depressed investor sentiment and sparked worries about possible revenue challenges for economies that rely heavily on oil, such as Nigeria.
Market participants claim that because demand from importers, manufacturers, and individuals is still high and dollar supply is still limited, the difference between official/NFEM and parallel market rates persists.
High dollar interest continues to keep the street market premium high, although some volatility has been reduced by recent policy actions, such as the central bank’s September policy rate cut and continued FX market management
The CBN has aggressively increased its foreign reserves to over $43 billion, allowing for regular forex market interventions.
This includes lowering parallel market premiums through unified exchange rate policies and crackdowns on illegal Bureau de Change (BDC) operations. The official Investors and Exporters (I&E) window has stabilized thanks to reforms like the elimination of fuel subsidies and electronic foreign exchange auctions, which have drawn billions of dollars in foreign inflows since mid-2024.
U.S dollar index struggles in the global financial market
The US Dollar Index (DXY), which compares the greenback’s strength to six major currencies, is trading at about 98.4 on Monday in London, retracing its recent gains from the previous session.
The US government shutdown, which has continued into its 19th day with no end in sight, is the reason why the greenback is in a meltdown phase. U.S. senators failed to break the impasse during Thursday’s votes for the tenth time. It is currently the third-longest funding lapse in US history.
The haven currency is also struggling as the US Federal Reserve (Fed) is more likely to cut interest rates in the future.
According to the CME FedWatch Tool, markets are currently pricing in a 96 per cent chance of another rate cut in December and a nearly 100 per cent chance of one in October. At the Institute of International Finance’s Annual Membership Meeting in Washington, DC, on Friday, Federal Reserve President Alberto Musalem stated that he could back a course that included another rate cut.
Market sentiment may improve because of the US-China trade tensions easing, which would limit the US dollar’s decline. President Donald Trump stated over the weekend that he wants China to continue purchasing soybeans at the same level as before.
Trump went on to say he thinks a soybean deal will be reached with China.
“We can reduce the tariffs that China must pay, but China must also do things for us,” he continued. The purpose of the upcoming meeting between Chinese Vice Premier He Lifeng and US Treasury Secretary Scott Bessent is to defuse tensions before a possible meeting between Presidents Trump and Xi later this month.
The US Dollar Index ended Friday’s trading session in positive territory after a three-day decline. The index moves sideways at about 98.50 as it struggles to build up bullish momentum to begin the week. US stock index futures show an improving risk sentiment as they rise between 0 and 35 per cent. US President Donald Trump declared his desire for China to purchase soybeans at least as much as they previously did. Trump went on to say he thinks China will reach a soybean agreement.
