The naira started Friday’s session on a downward trajectory against the British pound sterling, surpassing the N2,000 mark. Meanwhile, the pound hit a four-month high against the US dollar, driven by stronger-than-expected economic growth in the UK in May, reducing the likelihood of an August rate cut.
According to the Office for National Statistics, the UK economy grew by 0.4% in May. This announcement boosted the value of the British pound, which surged to a four-month high against the US dollar.
Market Dynamics
Despite improved conditions in Nigeria’s FX reserves, which reached $35.05 billion as of July 8, 2024, the naira depreciated, trading at N2,020 against the pound sterling in the black market. The naira’s depreciation in the Nigerian Autonomous Foreign Exchange Market (NAFEM) coincided with increased price volatility and a widening exchange rate disparity.
Based on NAFEM data, the naira fell by N29, trading at N1,561/$1 on Wednesday, down from N1,532/$1 on Tuesday.
UK Economic Performance
The British economy rebounded strongly from a temporary recession in the first quarter but stagnated in April. In May, the construction and production sectors saw output increases of 1.9% and 0.2%, respectively, while the services sector continued to grow at a rate of 0.3%.
As of 7:17 a.m. in London, the British pound was up 0.05% against the US dollar, trading at $1.2859, the highest level since March 8, 2024. The newly elected Labour Party, led by Prime Minister Keir Starmer, is expected to oversee a relatively strong economy.
Market Expectations
The Labour administration, with a substantial parliamentary majority and business-friendly rhetoric, is seen as favorable to UK-based assets. Observers anticipate that the Labour cabinet will focus on high-impact, low-cost policies to attract private investment, in line with recent pro-growth pledges.
Last week, Finance Minister Rachel Reeves announced plans to revise planning regulations, lift the moratorium on new onshore wind farms in England, and set mandatory house-building targets. Additionally, a £7.3 billion national wealth fund was established to attract private sector funding for infrastructure projects in the UK.
British Pound Outlook
Currency traders are monitoring potential corrections in the pound’s value. If a price correction occurs, rallies are expected to stay below $1.2857. A close below the weekly open is necessary to trigger a significant decline.
Initial support levels include the 2024 yearly open at $1.2731 and the swing low from February 2019 at $1.2773. Pullbacks must be limited to these levels for the monthly climb to continue. The wider bullish invalidation is now raised to $1.2664, the July open.
