The US Federal Reserve’s hawkish stance and high retail demand are exerting pressure on the naira at the unofficial market.
The naira weakened after the dollar was quoted at N1,454. 38/$ on Tuesday, compared to N1,448. 43/$ on Monday in the Nigerian Foreign Exchange Market (NFEM), according to data from the Central Bank of Nigeria (CBN).
The naira’s value declined further on the parallel market, weakening to N1,483/$ on Wednesday morning.
Importers and retailers are actively sourcing dollars to prepare for Christmas and New Year’s sales, which is driving up demand for foreign exchange. The naira has weakened after remaining stable in late November, reversing recent stability.
Retail-level dollar purchases, especially in the parallel market, are being boosted by an increase in international travel reservations and overseas school fees.
A’ hawkish” Fed often maintains or signals higher interest rates for longer than markets expect to combat inflation rather than stimulate growth. Consequently, investors find the US dollar (USD) more attractive, leading to capital outflows from frontier markets like Nigeria. Traders report that the market has been under mild but continuous stress as businesses front-loaded their foreign exchange obligations ahead of year-end.
However, the Year-to-Date Performance shows that, thanks to interventions by the Central Bank of Nigeria (CBN), FX reforms, and diaspora remittances, the naira has appreciated by about 5.7% against the USD, stabilizing in the N1,450–N1,470/$ range since early December.
The markets have priced in roughly a 60–85% chance of a 25-basis-point (bp) rate cut to 3.75–4. 00 percent at the Fed’s highly anticipated December 9–10, 2025, meeting, which concludes today.
However, hawkish officials are resisting, citing persistent inflation above the 2 percent target. Key hawkish voices include Kansas City Fed President Jeffrey Schmid, who favors no cut, calling inflation’ too high’ and policy’ modestly restrictive.’ Lorie Logan, president of the Dallas Fed, and Beth Hammack, president of the Cleveland Fed, warn of stalled inflation progress and advocate for a pause. According to the FOMC minutes, up to five voting members oppose further cuts.
U.S headline inflation rate decreased in late 2025 but remains high because of trade tariffs and a softening labor market. Chair Jerome Powell is likely to deliver a hawkish cut- a rate reduction combined with cautious forward guidance indicating a possible pause in 2026. In market reaction, the USD Index has risen as short-term futures now show only a 60 percent chance of a cut, down from 85 percent in November.
U.S dollar index turns green after the Job Report
The US Dollar Index (DXY), which measures the greenback’s strength against a basket of six world currencies, is trading flat at 99.20 after posting strong gains yesterday.
Currency traders would rather remain on the sidelines before a significant US Federal Reserve (Fed) policy decision later Wednesday. Job openings increased to 7.67 million in October, exceeding projections of 7.20 million, according to the US Labor Department’s JOLTS report released on Tuesday. A robust labor market, according to this report, may influence expectations for rate cuts and raise the DXY
The probability of a 25-basis point (bps) rate cut at the December meeting is currently priced by traders at nearly 87.4 percent, which has decreased by 2 percent following the most recent, more positive jobs report. Following the policy meeting, traders will watch Fed Chair Jerome Powell’s press conference. Powell will likely raise the bar for subsequent rate cuts, perhaps implying a pause following this action.
In addition to the central bank’s most recent dot plot, economic forecasts, and remarks from Chair Jerome Powell, traders expect the U.S Fed to cut rates for the third time in a row on Wednesday.
Concerns about a possible AI bubble and the effects of President Donald Trump’s trade policies have been overshadowed by the volatility surrounding the decision, which has been one of the defining features of equity trading over the last six weeks.
Global bond yields have risen to levels last seen in 2009, raising concerns that interest-rate cutting cycles from the US to Australia may soon come to an end. The Fed’s two earlier cuts this year were meant to counteract deteriorating employment conditions, which included an increase in the unemployment rate to almost 4.5 percent.
