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The British Pound’s last bargain was at N1,767/£1 against the naira as it maintained its bullish momentum against the British currency in the CBN’s post-cut era.
The Nigerian currency’s upward momentum remains undisturbed even though the Central Bank of Nigeria has adjusted its monetary policy stance, relaxing the Monetary Policy Rate (MPR) to 23%.
The naira has maintained a relatively stable position while lower benchmark rates generally suggest a reduction in the “carry cushion” for foreign investors in naira-denominated fixed income assets.
Historical data affirmed that the pound sterling has significantly depreciated against the naira when compared to the first quarter of the year, during which the Nigerian currency was quoted above the N1,900£1 level.
Stronger monetary buffers, including foreign exchange reserves exceeding $55 billion and consistent inflows from the oil and gas sector, have improved market liquidity, thereby deterring speculative attacks. Growth in domestic liquidity and increased oversubscriptions to Treasury bill and Open Market Operations (OMO) auctions have supported local demand for naira assets, despite the reduction in the policy rate.
British Pound lingers near late-June lows against the US dollar
The British pound sterling remains near its weakest level against the US dollar since June 26, having regained some ground from the previous session’s lows to approach the $1.32 mark as of early Friday.
The GBP/USD pair maintains a bearish outlook in the near term, with the overnight decline below the 1.3200 level reaffirming the risk of retesting year-to-date lows near the 1.3140 region, observed in June. The next significant support level is at 1.3100, followed by 1.3000.
Conversely, a reversal to the upside may encounter resistance below the 1.3300 level, requiring a break above for sustained upward momentum. The pair’s subsequent movement will target the critical 200-day Simple Moving Average (SMA) at 1.3448.
The US dollar exhibits a firm tone, and the currency appears poised to garner gains for the third consecutive week. Market participants will monitor the upcoming US jobs report for further insights. The highly anticipated US Nonfarm Payrolls (NFP) report will be pivotal in providing cues regarding the Federal Reserve’s next policy move, particularly as the US dollar remains under pressure despite diminished expectations of a rate increase in October.
Attention is focused on forthcoming US macroeconomic releases, with the US Dollar Index, which measures the dollar against a basket of six major currencies, remaining robust near a one-and-a-half-year high. This strength is partly attributed to inflation concerns fueled by oil prices, which have kept US yields elevated over multi-year peaks.
In addition, ongoing geopolitical tensions, notably US-Iran relations, continue to support the safe-haven US dollar. Furthermore, yields on 30-year gilts have risen above 6% for the first time since early 1998, raising fiscal concerns ahead of the Autumn Budget scheduled for October 28, and exerting downward pressure on the GBP. Nonetheless, downside risks appear limited because of cautious positioning ahead of key data releases.
The US 10-year Treasury yield approached 5.25% but retreated from multi-year highs on Friday. Yields declined from their peaks but remain close to 2002 levels, driven by safe-haven demand amid fears over France’s fiscal and political stability. A more hawkish Federal Reserve outlook has also influenced yields, despite the low unemployment rate in the US.
European government bonds experienced fluctuations, primarily driven by rising French yields. France’s 10-year OAT yield surpassed 4.9%, its highest since July 2002, marking the most significant quarterly increase in nearly four decades. This rise was influenced by news that the minority government proposed a plan to reduce the deficit, despite warnings from the country’s fiscal watchdog that the economic outlook remains overly optimistic.
