Even though August’s headline inflation rate was lower than usual, the Naira fell more than N100 against the US dollar at the official window.
According to data from the Nigerian Autonomous Foreign Exchange Market (NAFEM), the local currency was sold for N1,656 per dollar, which is more than the N1,546 per dollar that was recorded on Monday.
Conversely, the Naira gained N5 in the parallel market, trading at N1,660/$1 as opposed to N1,665/$1.
Due to lower food prices during the harvest season, headline inflation has decreased for the second straight month.
The headline inflation rate for August, as reported by the Nigerian Bureau of Statistics (NBS), decreased from 33.40% in July to 32.15%. Additionally, food inflation decreased, coming in at 37.52% as opposed to 39.53% in July 2024.
The US Dollar Index Rises Ahead of the Fed Meeting
The release of higher-than-expected U.S. retail sales statistics on Tuesday raised the potential for a less aggressive Federal Reserve. The data saw the U.S. dollar strengthen versus most other currencies, including the Naira.
The U.S. Dollar Index, which measures the dollar against a basket of six currencies, showed a small uptick after recovering from earlier lows this year. Most experts anticipate a more moderate rate decrease of 25 basis points, although some market pricing indicates a 50-basis point reduction.
The strength of the American labour market indicates that more monetary policy easing may be necessary to sustain economic expansion. Though perhaps more slowly, this high level of optimism could mean that the Federal Reserve will keep hiking interest rates.
According to data from the U.S. Commerce Department, August retail sales increased by 0.1%, raising hopes that the economy has stabilised for the majority of the third quarter.
Investors are currently waiting for the Federal Reserve to announce its interest rate decision, which is anticipated to happen after its policy meeting later today. The Fed last lowered interest rates in reaction to the COVID-19 epidemic in March 2020.
Even though Nigeria is anticipated to receive inflows of foreign capital later in the year, the current market state makes it doubtful that the Federal Reserve will undertake a significant rate reduction.
On Tuesday, the dollar index—which compares the dollar’s value to that of other major currencies, including the yen and the euro—rose by 0.199% to 100.90.
Fed funds futures now indicate a 63% probability of a rate decrease of 50 basis points, up from 30% one week ago, and a 37% probability of a cut of 25 basis points. These odds have changed after reports rekindled talk of possible aggressive easing measures.
Additional U.S. economic data made public on Wednesday indicates that the Federal Reserve might find it difficult to carry out significant rate reduction. In July, corporate inventories in the United States grew by 0.3%, and industry output increased again in August.
Although some analysts caution that the market may be getting ahead of itself, current fundamentals show that the market is already pricing in some rate decreases over the next months.
