Even though the dollar index had a considerable drop during the last trading session of the week, the local currency managed to cross the N1,160 mark in relation to the US dollar.
In major Nigerian cities, the value of the naira on the underground market versus the haven currency fell as low as N1,670.
Based on market fundamentals, seasonality is the reason for this variation. This is the time of year when the higher class Nigerians usually travel or have to pay for their children’s overseas education.
On Wednesday, the government successfully raised $900 million in its first domestic dollar bond, which resulted in a 4.8% gain for the naira; however, this gain was later reversed. The explanation given for the 48% decrease in domestic currency liquidity was dollar shortages.
In an effort to draw in international investment, President Bola Tinubu eliminated laws last year that maintained the currency’s artificial overvaluation.
In contrast to the dollar, the currency has lost more than two-thirds of its value. Nigerian businesses predict the naira to weaken further between now and December, but it is expected to strengthen the following year, according to a CBN poll.
Furthermore, the current state of the local currency contradicts the predictions of analysts at Financial Derivatives Company, Renaissance Capital, and Goldman Sachs, who all anticipated that the naira would stabilize at N1,000 or less.
US Dollar Index Falls In Friday’s Trading Session
The US Dollar Index, which gauges the strength of the US dollar relative to a basket of international currencies, fell on Friday as investors continued to process the inflation data released this week. Expectations that the Federal Reserve would lower interest rates by 50 basis points at its next meeting began to rise by the end of the week.
The DXY index’s technical indicators have shifted negative and are once again declining. Notably, a shift in momentum to the downside was indicated by the index crossing over the 101.2 support line and below its 20-day Simple Moving Average (SMA).
According to media reports, the Federal Reserve could declare at its policy meeting next week that it will be lowering interest rates by a significant 50 basis points. Because of this, the US dollar’s value fell against the Japanese yen on Friday, hitting its lowest point in nearly nine months.
After a former Fed official called for a large rate drop and reports suggested that a 50 basis point reduction was still possible, the market apparently adjusted its expectations. The U.S. rate futures market has priced in a 50-basis point relaxation by the Fed at the conclusion of its two-day meeting on Wednesday. This is up from about 15% early on Thursday. Furthermore, 2024 rate decrease expectations from futures traders have jumped from 107 basis points to 117 basis points.
After statistics revealed that consumer confidence in the US increased in September despite falling inflation, the dollar partially regained its losses. The preliminary estimate of the University of Michigan’s total consumer sentiment index for this month was 69.0, which represents an increase from the final reading of 67.9 in August. A preliminary score of 68.5 was predicted by economists surveyed by Reuters.
The measure of consumer price inflation, which does not include the volatile prices of food and energy, increased more than anticipated in August, according to U.S. economic data released this week. This suggests that the typical 25-basis point decline is still anticipated next week.
On Friday, though, former New York Fed President Bill Dudley stoked more rumours about a potential 50 basis point interest rate reduction. He made a compelling case for lowering rates by pointing out that they were currently 150–200 basis points over the so-called neutral rate, which is the point at which policy is neither accommodating nor restrictive for the US economy.
