The Nigerian naira remains stable in the official foreign exchange market as demand for the U.S. dollar eases in the second trading session of the week. According to data from the Central Bank of Nigeria (CBN), the naira stands at N1,534 against the dollar on Tuesday, slightly down from N1,533.56 recorded on Monday.
Despite high inflation, with Nigeria’s inflation rate rising to 34.60% in November 2024 from 33.88% in October, the naira shows resilience in the official market. The currency continues to trade within the N1,550/$ range, driven by importers, currency hedgers, and non-financial end-users, even as the official market’s fundamentals improve.
The CBN’s ongoing reforms to enhance the efficiency and transparency of the foreign exchange market contribute to the naira’s strength. Banks and authorized dealers use Bloomberg’s BMatch platform for foreign exchange spot transactions between the naira and the dollar. The Electronic Foreign Exchange Matching System (EFEMS) allows for direct negotiations and real-time price publications between market participants.
The International Monetary Fund (IMF) also acknowledges the naira’s stability, highlighting the CBN’s efforts to clear foreign exchange backlogs and the impact of recent interest rate hikes in its October report.
The U.S. dollar holds steady, staying near a three-week high. Traders anticipate potential interest rate signals from the Federal Reserve as they prepare for future rate decisions. The dollar index remains close to this three-week high during Asian trading.
Although a 25 basis point rate cut from the Fed is expected, traders are betting on a more hawkish stance from the central bank, especially with strong data on the U.S. labor market and inflation. The Fed is projected to adopt a slower pace of rate cuts in 2025, with analysts, including those at Goldman Sachs, forecasting a hold in January.
Recent data, including better-than-expected retail sales for November, supports the outlook for a gradual rate-cutting approach. The actions of the Fed, alongside policies under incoming President Donald Trump, are expected to continue to bolster the dollar.
Analysts at Bank of America (BofA) predict that the dollar will likely continue outperforming its G10 counterparts in the coming months, driven by strong U.S. economic performance. However, they anticipate a weakening of the dollar in the second half of 2025 as the impact of pro-growth policies under a potential second Trump administration fades.
The dollar’s strength is expected to shift as investors reassess the political landscape and the Federal Reserve adjusts its monetary policy.
, the naira stands at N1,534 against the dollar on Tuesday, slightly down from N1,533.56 recorded on Monday.){kind=link}