The haven currency strengthened significantly on Thursday despite the U.S. central bank cutting interest rates, countered by less dovish indications about future rate hikes. The local currency remained flat versus the dollar.
In the parallel part of the currency market, the naira closed unchanged versus the dollar at N1,660/$1. Additionally, it closed at N2,220/£1 about the British pound flat.
Fundamentals indicate that despite the U.S. Fed’s recent interest rate reduction, the Nigerian naira faces challenges. Although the country’s oil production, a significant source of foreign cash, is still at modest levels, the CBN’s recent intervention in the country’s unstable market hasn’t done much to stop the naira’s decline in value.
The unofficial black market’s N1,600 support line is firmly in the hands of naira short sellers, as evidenced by price action. Selling pressure is expected to increase due to the growing need for foreign money, mainly for travel, gasoline imports, and overseas tuition.
Following The Fed’s Dovish Forecast, The US Dollar Index Rose By More Than 50 Basis Points
While retaining their overnight gains, the dollar index and dollar index futures advanced almost 40 basis points on Thursday.
In line with market forecasts, the Fed dropped its benchmark rate by 50 basis points to 4.75% to 5.00%, coinciding with the currency’s strengthening.
In light of growing confidence that inflation is declining, Fed Chairman Jerome Powell said that there is now a balance between the risks of rising inflation and the further weakening of the labor market. The central bank will probably drop rates further. The Fed chairman continued, “We intend to maintain the strong labour market with such policy.”
The state’s rate range was lowered from 4.75% to 5.00%. The Fed announced a change in its monetary policy and rocked the markets.
According to Donald Trump and his supporters, it was a political decision. Some commentators saw the timing of the rate cut—less than two months before the election—as favourable for Kamala Harris, who is challenging an incumbent.
The Federal Reserve’s decision signalled a change in its monetary policy and sparked market turbulence, which decreased the value of the US dollar.
The DXY index’s technical analysis indicates a poor prognosis, with indications still in the bearish zone. Furthermore, the 20-day Simple Moving Average (SMA) dip suggests slowing the buying pace.
The Relative Strength Index (RSI), which is now falling and staying below 50, indicates a downward trend. The bearish trend is further supported by the Moving Average Convergence Divergence (MACD), which prints lower green bars.
The head of the Federal Reserve, however, declared that the Fed will have a far higher neutral rate from now on and that the US central bank has no intention of going back to the extremely low rate regime that was in place during the pandemic.
Powell’s remarks increased fears about higher-than-expected rates in the near and long term, even if traders are still pricing in cuts of at least 125 basis points by the end of 2024.
Given that the Federal Reserve appears to continue decreasing interest rates, the value of the US dollar may decline. This expectation develops as the Fed’s position changes, indicating that it is ready to operate more aggressively when the economy demands it.
But Chairman Jerome Powell insisted that the sharp drop signified the end of the war on inflation and that the world’s largest economy is still strong in spite of concerns that it may be heading into a recession. “Over the past year, our patient approach has paid dividends,” Mr. Powell said. “We are more confident that inflation will rise steadily to 2 percent, and we are much closer to our target.”
