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The Euro-to-Naira exchange rate has remained relatively stable within the range of N1,548/€ amid the strengthening of the Naira.
Naira’s recent appreciation helped to reduce arbitrage opportunities in the parallel market, which previously increased transactions at official channels such as the NAFEM system.
The typical premium that negatively impacted the Nigerian currency against major trading currencies like the Euro and the US Dollar have diminished. The black-market rate was around N1560/€
Nigeria’s gross external reserves have surpassed $54 billion, currently fluctuating between $54.08 billion and $54.13 billion. This marks the highest level since December 2008.
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This substantial accumulation of external reserves provides the Central Bank of Nigeria (CBN) with significant monetary leverage, directly influencing projections for the Nigerian Naira (NGN) and its cross rates, including EUR/NGN.
CBN’s “War Chest’ has grown, enhancing its ability to manage the foreign exchange market effectively. This increased capacity facilitates greater liquidity at manageable volatility and ensures the support of legitimate corporate and retail demand for foreign exchange.
This benchmark has positively influenced market sentiment, reducing speculative hoarding. The CBN’s substantial reserves suggest a promising outlook for currency stability supported by ample liquidity.
Euro holds at $1.16 against the greenback ahead of US CPI data
The Euro remains relatively steady at approximately $1.16 against the US Dollar during Thursday’s European trading session. Its principal currency pair remained within a narrow range between $1.1566 and $1.1641 for the third consecutive week.
Market direction is expected to be clarified with the release of the US August Consumer Price Index (CPI). The CPI report is anticipated to show stability in both the Headline and Core indices, remaining at 3.4% and 2.4% year-over-year, respectively.
Investors are awaiting US consumer inflation data to gauge the Federal Reserve’s monetary policy stance. Expectations of an additional hawkish rate hike by the Fed have increased, following the announcement of a higher-than-expected Producer Price Index (PPI) for August and fueling speculation about potential future rate increases.
Rising oil prices, which have surpassed $100 per barrel for the first time in nearly four months amid escalating conflicts in the Middle East, have intensified inflation concerns.
Notably, Iran-backed Houthi militants captured the port of Mocha in Yemen on Thursday, advancing along the Red Sea coast toward strategic islands, according to military sources cited by BBC News. Additionally, operational constraints at the Strait of Hormuz and reports from US officials quoted by WSJ indicate that Iran has doubled its ballistic missile production.
The US dollar’s future trajectory will be influenced by the forthcoming US CPI figures, with particular attention to core metrics, as these clearly reflect the Federal Reserve’s outlook and mitigate potential oil price-related geopolitical risks.
An unexpected increase in core inflation could reinforce the Fed’s hawkish stance, supporting a rate hike next week and boosting demand for the US dollar and bonds.
However, this scenario could cause a surge on the US dollar index. Conversely, weaker core CPI figures might soften expectations for September rate hikes, potentially increasing interest in precious metals and diminishing the US dollar’s appeal.
Currently, the US dollar index remains stable around the 99.1 range. The euro’s significant presence in the DXY index (57.6%) keeps the dollar anchored around the mid-98 support level, influenced by the EUR/USD trading range. The market is closely monitoring the upcoming US CPI release.
Meanwhile, the euro faces challenges in attracting demand despite forecasts of another rate hike by the European Central Bank (ECB) by year-end.
Nonetheless, ECB President Lagarde, in Thursday’s policy statement, warned that inflation pressures are likely to remain elevated. The EUR/USD exchange rate has held within the familiar range of 1.1560 to 1.1640 as markets process recent ECB decisions and anticipate future Federal Reserve policy moves. A softer US inflation reading could reinforce expectations of early Fed easing, potentially triggering a breakout from the current technical bounds.
