After two days of substantial depreciation in a week characterized by significant volatility in the foreign exchange market, the naira showed signs of stabilizing as it closed at N1,485.99/$1 on Friday, May 31, 2024.
This marks a slight decline of 0.08% from the previous day’s close of N1,484.75/$1, and the lowest depreciation rate since January 19, 2024, amid CBN’s interventions.
How the week went
- The naira experienced a tumultuous week in the foreign exchange market, culminating in a relatively stable close at N1,485.99/$1 on May 31, 2024, according to data from the FMDQ.
- The currency’s performance this week reflects a significant struggle to maintain its value amidst fluctuating forex turnover and investor sentiment.
- The naira started the week on a bright note, closing at N1,339.33/$1 on May 27, marking a 10.71% appreciation in value. Forex turnover on the NAFEM window was recorded at $180.8 million, a drastic 67.50% decline from previous figures. This significant drop in turnover highlighted the volatile trading environment and reduced market liquidity.
- On May 28, the naira maintained a rebound, appreciating by 14.09% to close at N1,173.88/$1. Forex turnover saw a substantial increase to $328.32 million, an 81.59% rise, indicating a surge in market activity and possibly a short-term confidence boost among traders and investors.
- However, this rally was short-lived as the naira depreciated by 11.72% the following day, closing at N1,329.65/$1 on May 29. Despite the negative performance, forex turnover remained robust at $336.54 million, a slight increase of 2.50%.
- The downward trend continued into May 30, with the naira closing at N1,484.75/$1, reflecting a 10.45% decline. Forex turnover dropped significantly to $235.41 million, a 30.05% reduction, highlighting the persistent challenges in maintaining market stability and liquidity.
- However, the naira slowed to a marginal depreciation of 0.08% on Friday. Forex turnover decreased further to $213.52 million, a 9.30% decline. This closing rate suggests that while the naira has managed to stabilize somewhat, the pressures on the currency remain.
This marginal change suggests a possible stabilization as market participants adjust to the new rates and the Central Bank’s interventions to manage liquidity. The reduced turnover could be indicative of a wait-and-see approach by investors and traders, reflecting cautious optimism.
What you should know
The fluctuating forex turnover throughout the week underscores the uncertain market conditions and the challenges faced by the Central Bank of Nigeria (CBN) in managing the country’s exchange rate. The significant drops and gains within the week indicate heightened sensitivity to external economic pressures and internal policy measures.
The CBN may need to implement more robust interventions to stabilize the naira and ensure adequate forex liquidity.