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Nigerian Naira shed slight value against the British Pound in the Nigerian market (both NFEM and parallel).
The development came as the pound Sterling enjoyed a much-needed comeback in the international foreign exchange market.
The British pound sterling was transacted at N1,838/£1 at the beginning of today’s official trading session on NFEM (computed via cross rate with USD), up from N1,839/£1 before the holidays.
The naira has found solid support on the back of the CBN’s strong structural and monetary policy stance. However, the British Pound continues to hold firm in the global foreign exchange market on robust UK macro data and l global uncertainty.
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Nigeria’s apex bank has employed a proactive defense strategy to conserve the Naira in a high-yield environment (high Monetary Policy Rate).
The high yields have provided the necessary inducement to bring back Foreign Portfolio Investors (FPIs) into Naira-denominated money market instruments (e.g., T-bills). This inflow has increased Nigeria’s FX liquidity and supported the Naira.
The widening gap between rates in the official and parallel markets, which fueled speculative hoarding and arbitrage, has since narrowed following the adoption of the current policy approach. Improved inflows from both sources have strengthened CBN’s cushion, enabling intervention in the FX market as needed and helping avert sudden liquidity shocks.
Nigeria, as an oil-dependent nation, relies critically on oil prices and output. Higher global oil prices generate higher dollar flows to the federation account. Though Africa’s most youthful population derives revenue from the sale of crude, the nation still imports crude petroleum products & raw materials used in industrial production processes in the aftermath of the Dangote refinery.
British pound holds the dollar below $1.3665 as currency traders await US inflation data
The British pound last traded beneath the $1.3665 supply area; clearing this area would serve as a fresh catalyst in favor of the bulls, paving the way for more highs in cable. Though short-term momentum remains positive, failing above this resistance points to a larger corrective slide beneath 1.3600 levels toward the mid-1.3500s region.
- Markets in the US will be anxiously awaiting a raft of US inflation figures due out Thursday, as well as a speech on Friday from Fed Chairman Kevin Warsh, which will offer insight into how the US central bank intends to adjust interest rates. Elsewhere in markets, the Middle East situation will influence how the US Dollar index trades both on its own and as the GBP/USD.
- Kevin Warsh needs to explain how a Fed without forward guidance intends to anchor expectations, how much tightening the Fed is prepared to tolerate through long-term yields, and the policy boundary between the Fed and the Treasury, as recent developments with US yields have highlighted.
- It needs a Fed communication breakthrough soon, which, on current evidence, appears lacking, and markets are clearly voting their doubts against the safe-haven status of the greenback while questions are being asked about the stability of high US yields.
In the interim, US inflation figures come in at softer levels alongside the labor market slowdown, moving towards the view of the FOMC holding rates on 15-16 September. Furthermore, US Treasury buyback plans and falling crude prices resulting from lower inflation could continue to push down US bond yields, which should weigh the USD and support a bounce in cable.
On one hand, two US senior officials said the Treasury could also use funds from the more than $947 billion cash in its General Account to finance recently approved buybacks of longer-term Treasury bonds.
On the other hand, geopolitically, Iran has stated that it has already restarted talks with its counterpart, Oman, to oversee the flow of commercial shipping traffic through the Strait of Hormuz, driving crude prices to a nearly two-week low in the process.
Iran was also offered the end of the US naval blockade and sanctions in return for reopening the Strait to shipping and ending attacks by its proxies in the region, reviving talks of rapprochement; thus, one should exercise caution before initiating a long position in dollar depreciation.
