Despite the bullish dollar index in the global financial market, the Naira began Friday’s session at N1,580/$ per dollar in the parallel market, down from N1,590/$ on Thursday.
The naira is weak, according to recent socioeconomic fundamentals in Nigeria.
Because Nigeria depends heavily on fossil fuels for its foreign exchange revenues, the naira is a derivative of crude oil. The Nigerian currency suffers due to worries about sluggish demand, rising trade tensions between the United States and significant trading partners, and hikes in OPEC+ production quotas.
Nigerian Bureau de Change operators have accused commercial banks of failing to sell them foreign cash.
Further details
Aminu Gwadabe, president of the Association of Bureau de Change Operators of Nigeria (ABCON), expressed worry that BDCs are having trouble with a lack of foreign exchange.
Despite CBN efforts to improve rates, demand for Nigerian one-year treasury bills has been steadily declining, jeopardizing the country’s reliance on FPI inflows.
- At this surprise auction, yields on one-year T-bills rose from 22.52 percent to 24.9 percent, marking the second straight increase as the market was still affected by liquidity shortages.
- Compared to N1.5 trillion in the first auction of 2024, the demand for one-year T-bills dropped precipitously to N861 billion on Wednesday, the lowest level this year.
- Amid a continuing political conflict between the state and the federal government on the allocation of federal funds to Rivers, militants have vowed to target the state’s oil infrastructure.
- An explosion earlier this week destroyed the Trans-Niger Pipeline, one of the main routes for delivering crude that is pumped in the Niger Delta to the export terminal at Bonny.
The explosion sparked a massive fire at a section of the pipeline, necessitating an immediate rerouting of the oil flow.
Nigeria produced 1.7 million barrels of oil daily, at its highest point in 2024. In the next two years, the Federal Government wants to drastically increase that to almost 1 million barrels per day.
But pipeline vandalism and oil theft make such optimism nearly impossible, giving the naira a gloomy outlook.
Nonetheless, the recent drop in Nigeria’s inflation rate was aided by the naira’s relative stability during the first quarter.
According to NBS data, the nation’s inflation rate first declined in 2025, from 24.48 percent in January to 23.18 percent in February.
The drop was caused by a stable naira, lower energy prices, and Nigeria’s inflation index rebasing.
Strength of the US Dollar Indicates Recovery
Though worries about greater tariffs and slower GDP restrained risk appetite, the dollar gained value as traders anticipated that there would not be any short-term interest rate cuts.
- Despite the Federal Reserve sticking to its 2025 rate-cut estimates of 50 basis points, the dollar recovered from its post-Fed losses as investors were increasingly confident that the central body would maintain rates higher for longer this year. Following an overnight recovery, the dollar index and dollar index futures rose 20 basis points during Friday’s trading session in London.
- Market action revealed that the U.S. Dollar Index still exhibits hints of recovery, but there is still little upward momentum. The Relative Strength Index (RSI) is gradually increasing, but the Moving Average Convergence Divergence (MACD) histogram is still in negative territory despite the waning bearish pressure.
- FX traders’ focus has been maintained by the Federal Reserve’s most recent policy position, which reiterated projections for two rate reductions in 2025. The greatest economy in the world has strong economic data, and the index is firmly positioned in the 103–104 area. Since the U.S. Federal Reserve held interest rates steady this week, markets have factored in a decreased chance of short-term rate cuts.
- The Federal Reserve considered labour market resiliency when determining whether to cut interest rates, as evidenced by data on U.S. unemployment claims. Currency traders mostly disregarded President Donald Trump’s calls for the Fed to cut interest rates.
On Thursday, U.S. President Donald Trump said a rate drop by the Federal Reserve “would be great.”
However, the central bank stated that it had no such plan, pointing to the trajectory of inflation, Trump’s tariffs, and heightened economic uncertainty. The Fed also raised its inflation prediction for 2025 while downgrading its growth outlook.
Given the growing tensions in Gaza and Turkey and the lack of a clear path to a ceasefire in Ukraine, geopolitical uncertainty is still high. U.S. bond yields are declining as investors seek refuge in Treasuries amid economic and geopolitical uncertainties.
The expectation that yields will drop once the Fed starts to lower rates fuels the robust demand for U.S. assets. Following the Fed’s policy decision, European markets show a range of emotions, while American equities markets trade carefully.
