The naira was relatively stable against the British pound, where the sterling showed some strength this year in the global foreign exchange market.
The British pound sterling fluctuated between N1,903/£-N1,906//£ on Nigeria’s official foreign exchange market.
The pound traded strongly this year amid a weaker U.S dollar index and high geopolitical uncertainty
The British pound sterling traded below the N2000/£ market at the unofficial market in Lagos. It ranged between N1,985/£ and N2,015/£.
The spread has been stable this month as bureau de change operators reported that despite a steady demand for the British Sterling the foreign exchange market is not feeling the same level of speculative pressure as in prior quarters.
The British pound’s interest in the Nigerian economy has grown dramatically in recent years amid Nigeria’s ongoing reforms and the UK’s post-Brexit drive for closer ties with emerging markets, especially from 2024.
The Enhanced Trade and Investment Partnership (ETIP), signed in February 2024, has been a catalyst for increased FX inflows from the British economy from industries like financial services, digital innovation, agritech, creative industries, and green infrastructure. This agreement has lowered regulatory barriers and increased collaboration.
The framework has changed the relationship from one of aid dependence to one of mutually beneficial investment and trade when paired with the UK’s Developing Countries Trading Scheme (DCTS), which grants duty-free access to 99 percent of Nigerian exports.
United Kingdom’s exports to Nigeria reached £5.6 billion –£5.7 billion in rolling four-quarter periods through mid-to-late 2025 (up 12–14 percent from previous years), driven by services, machinery, and other goods. UK based investors also accounted for approximately 65% of recent capital inflows into Nigeria.
The British pound turns soft ahead of the BOE meeting
The pound sterling traded lower against its major currency counterparts on Thursday in anticipation of the Bank of England’s (BoE) interest rate decision.
Investors anticipate that the central bank will maintain interest rates at 3.75 per cent since the BoE lowered borrowing rates at its most recent meeting in December and stated that monetary policy would continue on a “gradual downward path.”
- Alan Taylor and Swati Dhingra, members of the Monetary Policy Committee (MPC), are anticipated to push for another 25-basis-point (bps) reduction in interest rates.
- The Monetary Policy Report and Governor Andrew Bailey’s press conference, which would offer new clues on the interest rate outlook, will be the main drivers of the British currency, assuming the BoE keeps things as they are.
- BoE officials are likely to support the continuation of the monetary easing path since employment conditions are poor, and price pressures are predicted to return to the central bank’s 2 percent target soon.
The ILO Unemployment Rate has been at its highest level since January 2021 for the past two months, at 5.1%. The BoE forecast at the most recent policy meeting that inflation would return to the 2 percent target in the second quarter of 2026; however, after cooling in October and November, price pressures picked up speed in December.
Political anxiety in the UK affects the British bond market
The UK longer-term bonds were negatively impacted by a new round of political unrest in the UK on Thursday. The difference between two-year and ten-year gilt yields has widened to its largest level since 2018.
- The actions come as investors’ demand for a higher political risk premium rises due to growing skepticism about Prime Minister Keir Starmer’s hold on power.
- Starmer has faced mounting criticism for his choice to name Mandelson as the US ambassador Despite being aware of Peter Mandelson’s relationship to disgraced financier Jeffrey Epstein.
- Shorter-dated British notes are typically influenced mainly by monetary policy, whereas longer-dated debt is more susceptible to political and fiscal risk.
Longer-dated gilt yields are significantly lower than last year’s highs but given Labor’s dismal poll results and his own record disapproval rating, rising borrowing costs present another challenge for Starmer. It is anticipated that the party will do poorly in the local elections in May.
