In the official market, the Nigerian naira remained steady as the demand for the US dollar cooled off during the week’s second trading session.
In contrast to the N1,533.56 quoted at the Electronic Foreign Exchange Matching System (EFEMS) on Monday, the local currency settled at N1,534 versus the dollar on Tuesday, according to CBN statistics.
In the face of rising inflation data, the naira shows strength on the official market. According to NBS data, the nation’s inflation rate rose from 33.88% in October 2024 to 34.60% in November 2024.
Despite better fundamentals in the official market, importers, currency hedgers, and non-financial end users drove the naira’s trading inside the N1665/$ bandwidth.
The CBN’s continuous reforms to increase the effectiveness and transparency of Nigeria’s FX market have improved the naira’s fundamentals.
Bloomberg’s BMatch platform allows banks and authorised dealers to trade foreign exchange for spot transactions involving the US dollar and the naira. By providing buy/sell orders and real-time price publications, EFEMS helps market participants engage in direct discussions.
In its October report, the IMF confirmed the naira’s stability and credited the Central Bank of Nigeria’s efforts to clear foreign currency backlogs with recent interest rate hikes.
Dollar Index Hits Three-Week High
As traders awaited more Federal Reserve interest rate signals, the dollar remained stable at three-week highs.
During Asian trading, the dollar index and dollar index futures both held steady, staying close to a three-week high earlier this week.
- It is commonly expected that the Fed will lower interest rates by 25 basis points. Traders are placing bets on a potentially hawkish central bank outlook, nevertheless, especially in light of recent statistics showing that inflation and the employment market are still strong.
- In 2025, the U.S. central bank is expected to imply a slower rate of easing. Several economists, including Goldman Sachs, predict a hold in January.
- In the wake of Tuesday’s better-than-expected retail sales figures for November, the Fed is anticipated to have enough leeway to reduce rates more gradually.
- It is also expected that incoming President Donald Trump’s expansionary and protectionist policies will support headline inflation figures and interest rates.
Other hints concerning Asian monetary policy leading into 2025 will come from central bank decisions this week in the Philippines, Thailand, Indonesia, and Japan in addition to the Fed.
Forecast for the Dollar: Uptrending in the Mid-Term
Due to economic growth, BofA analysts projected that the dollar would likely continue to beat its G10 rivals in the upcoming months. However, as investors reassess the impact of the election and the Fed makes more rate reductions, the dollar would likely decline in the second half of 2025.
“As we await more clarity from Washington on several anticipated policy changes,” analysts at BofA said. “We are first looking for continued dollar support for the next several months on the back of ongoing economic outperformance in the world’s largest economy.”
As the price gain in a pro-growth economy under a second Donald Trump administration wanes, the dollar’s trend is expected to shift in the second half of 2025. The researchers anticipated that the strength of the USD would eventually decline.
