The naira regained strength against the haven currency over the weekend, breaking below the N1,300 resistance level at the parallel market, to settle at N1,270-1,275 against the dollar as the U.S. Federal Reserve Bank meets on interest rates.
The new rate represents a 10% increase compared to the N1,400 to a dollar it traded at the close of business activity on Friday.
The naira’s quick gain at the close of April comes after a surge in demand for dollars in the parallel market driven by banks and end-users, combined with slow forex disbursement to Bureau De Change (BDC) operators by the Central Bank of Nigeria (CBN).
These factors caused the naira, last week, to fall by 23% against the dollar, recording the worst weekly naira performance since February.
Currency dealers had earlier attributed the moderation in the naira’s bullish momentum to the CBN’s sluggish pace of disbursement.
They observed that some BDCs received dollar disbursements in small amounts, while other BDCs did not get dollars for almost two weeks following naira payments to the Nigerian apex bank.
EFCC intensified clampdown on currency speculators
The fortune of the naira took a new turn as the Economic and Financial Crimes Commission (EFCC) launched an additional offensive against currency traders and online platforms that manipulated the value of the naira.
According to the federal government agency, 34 alleged currency speculators were taken into custody by its agents affiliated with the Taskforce on Currency Mutilation, Dollarization of the Economy, and Forex Malpractice on suspicion of engaging in foreign exchange fraud.
Additionally, the EFCC has been granted the authority to block 1,146 accounts linked to an ongoing investigation for “offenses of dealing in unauthorized foreign exchange, money laundering, and terrorism financing,” thanks to an order from the Federal High Court.
The Nigerian Senate, through its Committee on Finance, demanded that all relevant parties take coordinated measures to safeguard and maintain stability. The lawmakers emphasized that coordinated efforts are urgently needed to address the instability and ongoing depreciation of the naira.
Dollar shows stability amid U.S. Fed interest rate decision
The dollar index was marginally within its five-month high as the dollar posted significant gains for April, as most predictions of an early rate drop by the Fed had been priced in by markets.
At the time of writing, the Dollar Index, which compares the value of the US dollar to a basket of six major currencies, decreased from 105.8 to 105.77 index points.
Bullish wagers came to a head on Friday when the Fed’s favorite inflation indicator, the PCE price index, showed higher-than-expected March readings.
The Fed meeting is now the main event of this week. The central bank will likely maintain stable rates and possibly present a cautious perspective, considering the recent volatility in U.S. inflation.
Market estimates for the timing of the first interest rate cut have been pushed back to December due to elevated inflation, robust activity, and positive job figures.
We believe there is still room for a September rate reduction. However, the Federal Reserve will continue to exercise caution and indicate that interest rates will rise if inflation remains high.
The idea that higher-for-longer rates are likely to be detrimental to the naira has led most market analysts to believe that the CBN would maintain rates high to maintain investor interest in the currency.
