The naira broke through the N2,180 barrier and began Thursday’s session at the lower end of its range against the British pound sterling.
The pound was trading at N2,188/£1 on the black market on Thursday, despite better conditions in Nigeria’s foreign exchange assets held by the CBN.
The naira’s rapid depreciation against the British pound sterling in the second half of this year coincides with Nigeria’s reserves reaching $40 billion this month, the highest level under Tinubu’s leadership.
The pressure of the British pound on the naira remains high, even though the number of Nigerian students studying in the UK has more than halved due to British policy changes intended to reduce migration.
Home Office data revealed that 4,669 “main applicant” student visas were issued to Nigerians in the first half of 2024, a 68% decrease from 14,772 during the same period in 2023. This resulted in 10,103 fewer Nigerian student visas, accounting for 43% of the total 23,565 decrease in foreign student visas overall.
Many Nigerian citizens historically prefer the United Kingdom, partly because of strong cultural ties, similar time zones, shorter travel distances compared to the United States and Canada, and the absence of a language barrier. Nigeria’s trade with the United Kingdom amounted to about €35 billion, or roughly one-third of its total foreign trade as of last year.
Additionally, Nigeria had a trade surplus of more than €10 billion with the UK.
However, weak oil production, fiscal indiscipline, low export capacity, increased FX hoarding, and speculative activities have all contributed to the fragile state of the country’s foreign exchange market.
The United Kingdom’s Office for National Statistics (ONS) reported that inflation in October accelerated more than anticipated, which caused the pound sterling to rise sharply against its major peers, including the Nigerian naira, on Wednesday.
The Consumer Price Index (CPI) data shows that the annual inflation rate rose to 2.3%, exceeding the initial forecast of 2.2% and the 1.7% peak seen in September. Core inflation also increased sharply by 0.6% compared to the previous month, surpassing the expected 0.5% increase and following its stability in September.
The core CPI, which excludes volatile items such as food, energy, oil, and tobacco, rose by 3.3%, higher than the previous figure of 3.2%. Economists had expected the inflation base to decline to 3.1%.
British Pound Outlook
The fundamentals for the British pound remain mixed and tilt toward a bearish outlook, giving the Nigerian naira some breathing room at the N2,500/£1 resistance line.
The UK economy’s unexpected contraction of 0.1% in October GDP, revealed on Friday, significantly impacted the pound. The third-quarter economic growth also hindered the British pound’s bullish run.
- The surge in the US dollar began following Trump’s victory. Market watchers have reevaluated the Federal Reserve’s plan to lower interest rates next year. CME’s FedWatchTool indicates that the likelihood of a 25-basis point rate cut in December has decreased from 77% to 62%. Fed officials are also uncertain about the rate path going forward, which may be slowed down considering the jobs and economic growth data.
- Price action shows that the GBP/USD remains exposed, with strong demand for the US dollar against risk assets. The recent escalation between Russia and Ukraine has caused an increase in sales of around 1.2640, despite attempts to stabilize the British currency.
Additionally, comments from Donald Trump’s aide, Stephen Moore, have put pressure on the pound. According to Moore, the United Kingdom must choose between the European Union and the United States, as the US administration would not engage with the UK if it prioritizes the EU over the world’s largest economy.
