The Nigerian naira is hovering around the N1,650/$ mark in the black market. Concerns over the U.S. economy’s growth outlook led to a mild loss for the haven currency in London’s trading session. The NGN/USD pair has been at its lowest level since March despite growing expectations for interest rate cuts in the U.S.
In the black market, the naira lost N5 against the dollar, trading at N1,645/$1, down from N1,640/$1 earlier.
In the official market, the naira depreciated further against the U.S. dollar. On Wednesday, September 4, 2024, data from the Nigerian Autonomous Foreign Exchange Market revealed that the naira traded at N1,625/$1, down from N1,611/$1 on Tuesday.
Central Bank Actions and Currency Pressures
The Central Bank of Nigeria (CBN) has raised its benchmark interest rate by 15.25 percentage points since 2022, reaching a record 26.75% in July, to stabilize the foreign exchange (FX) market. The CBN’s Monetary Policy Committee is scheduled to meet on September 23 and 24.
The local currency market has faced increased pressure due to rising demand from travellers and importers during the summer holidays. While Nigeria’s FX assets have grown, instability, depreciation, and dollar liquidity shortages have complicated the central bank’s efforts to support the naira. The currency has been one of the worst performers globally in the first half of 2024.
Expectations of a pause in the CBN’s interest rate hikes were disrupted by a 45% increase in gasoline prices and continued pressure on the naira. However, S&P Global suggests that the Dangote Oil Refinery and Petrochemicals could drive economic growth and ease foreign exchange challenges in Nigeria, potentially alleviating pressure on the naira.
U.S. Dollar Index and Economic Data
The U.S. Dollar Index, which measures the dollar’s strength against a basket of six major currencies, ended its recovery streak on Wednesday following weaker-than-expected U.S. job openings data and mixed signals from the Federal Reserve’s Beige Book.
While the U.S. economy continues to exceed growth expectations, a softening labour market has led to predictions of a more dovish Federal Reserve. Market forecasts still suggest a 100 basis-point rate cut by the end of the year and a 200 basis-point cut over the next 12 months.
Global financial markets remain tense, with stocks suffering the most due to concerns about the U.S. growth outlook and a faster-than-anticipated slowdown in the labour market. U.S. job vacancies fell to a 3.5-year low in July, indicating a loss of momentum in the labour market, as reflected in the ISM manufacturing survey, which remained in contraction.
Wells Fargo economists noted, “Job openings data for July showed few signs of the ongoing cooling in the labour market coming to an end. For the Fed, this data reaffirms that the labour market is no longer a source of inflationary pressure on the U.S. economy.”
On Thursday, the U.S. dollar regained some losses from the previous session as traders increased bets on the Federal Reserve’s aggressive easing cycle, which is expected to begin this month.
