The Nigerian naira has made significant gains against the British pound this year on the unofficial market, buoyed by inflows from Foreign Portfolio Investors (FPIs) and increasing confidence in the local currency.
On Thursday, the naira settled at N1593 against the British pound, marking a notable increase of N821 from its low of N2414 recorded on February 24, 2024.
Despite the pound’s strength against the US dollar, which persists above the one-week high of 1.2660, the naira continued to strengthen against the pound.
Recent economic indicators suggest that the UK economy is poised to resume growth after entering a technical recession in the second half of 2023.
In Nigeria’s FX auction market on Thursday, the naira strengthened by 0.62 percent, with the dollar quoted at N1,255.07, stronger than the previous day’s rate of N1,262.85 at NAFEM.
The stronger naira in the parallel market can be attributed to reduced speculation as foreign exchange hoarders unloaded their holdings following the Central Bank of Nigeria’s FX policy measures.
The CBN’s efforts to control inflation and stabilize the naira include raising its benchmark interest rate, known as the Monetary Policy Rate (MPR), by 200 basis points to 24.75 percent in February 2024.
Additionally, the CBN eased limitations on the sales of interbank proceeds and limited the payment of Business Travel Allowance (BTA) and Personal Travel Allowance (PTA) to electronic channels only.
Market analysts expect the naira to continue its upward trend, driven by the CBN’s policy measures to absorb liquidity and attract more capital through increased Open Market Operations (OMO) sales.
Meanwhile, in the UK, manufacturing PMI unexpectedly increased in March, driven by strong domestic demand. However, market expectations of rate cuts by the Bank of England amid declining inflation may influence the value of the pound sterling in the mid-term.
