As the U.S. dollar rises following Donald Trump’s return to the presidency, the Nigerian currency is preparing for difficulties.
Last Friday, the official market saw the naira trade at N1,678/$, down N39 from Thursday’s rate of N1,639/$.
According to FMDQ data, the naira has lost more than 70% of its value in relation to the dollar since its free-market adjustment in June 2023, which was intended to regain investor confidence in the Nigerian economy.
The steep devaluation of the naira has resulted in huge losses for certain well-known corporations with dollar-denominated contracts.
Because of their exposure to the dollar, Nigerian Breweries and NestlĂ© Nigeria experienced a rise in liabilities.Â
Because of their exposure to the dollar, Nigerian Breweries and Nestlé Nigeria experienced a rise in liabilities.
Further Details
According to a recent study conducted by the Central Bank of Nigeria (CBN), businesses in Nigeria anticipate more naira depreciation through December, with a recovery expected the following year.
To draw in investors and spur economic expansion, the Tinubu administration made a daring attempt to restructure Nigeria’s currency rate regulations.
Modernizing currency valuation techniques to encourage investment was the obvious goal.
Global markets are anticipated to be impacted by the administration of U.S. President-elect Donald Trump when he takes office on January 20, 2025.
Trump’s well-known “America First” strategy, which prioritizes energy independence, may result in lower oil prices if domestic production in the United States increases. This would put further pressure on the naira and squeeze Nigeria’s oil revenue.
Analysts say Trump’s protectionist policies and high tariffs may strengthen the currency.
Additionally, some traders anticipate that Trump’s return in 2025 will result in a stronger dollar, which might drive the naira into the N2000/$ level as the Federal Reserve continues its cycle of interest rate cuts.
U.S. investment in Africa may change under the Trump administration. Trump’s mistrust of foreign aid may result in less funding for U.S. development initiatives, but the growth of initiatives like “Prosper Africa” may increase foreign exchange market liquidity in Nigeria.
Forecasts For The Market
In the medium run, the market anticipates that the value of the haven currency will probably continue to increase in relation to the other main currencies. Despite the anticipated drop in U.S. rates issued by the Federal Reserve, the dollar increased on Friday.
The Federal Reserve lowered interest rates from 4.5 percent to 4.75 percent, its second rate drop of the year.
This follows the first half-point decline since March 2020 in September.
The monetary authority did not completely rule out the possibility of another rate drop in December; much depends on how the economy develops.
First, the US fiscal deficit, which is already high at 6.5% of GDP, is anticipated to grow, raising Treasury yields even more.Â
The Tax Cuts and Jobs Act of 2017, passed during his first term and set to expire at the end of 2025, is something that Trump wants to extend.
If the Republicans cannot secure a majority in the House, a divided legislature will likely extend the tax cuts.
What To Note
If the Democrats cannot regain control of the House of Representatives, the Trump administration will have little difficulty lowering taxes even further.
The dollar’s present strength is unlikely to last the full four years of Trump’s presidency. The incoming president may pressure the Fed to keep cutting interest rates even if inflation improves, which would be one of the many long-term risks facing the dollar.
Trump is also anticipated to succeed Powell as Fed chief when his term concludes in May 2026. The dollar would decline under a meek successor, raising questions about the central bank’s independence.
In conclusion, Trump’s administration will affect the Naira, but the type and extent of that impact will vary depending on various domestic and foreign variables that are not related to US policy.
