The local currency maintained its ground during the fourth trading session of the week, despite the US dollar index oscillating at a two-year high.
The Central Bank of Nigeria’s (CBN) ongoing reforms in the foreign exchange market have bolstered liquidity and confidence, with the naira settling below the N1,550/$ threshold in the official market.
CBN data revealed that the Nigerian naira strengthened against the dollar on Thursday, closing at N1,540/$—a N5 gain from Wednesday’s closing rate of N1,545/$ at the Nigerian Foreign Exchange Market (NFEM).
The naira’s value remained relatively stable at N1,660 to the US dollar in the black market.
Strengthen the Naira
Price action indicates that naira short sellers still dominate the unregulated market. The demand for foreign exchange, particularly for fuel imports, vacations, and overseas tuition, is expected to keep the naira above N1,500/$ at least until the Christmas holidays.
- The Nigerian apex bank’s reforms have played a pivotal role in promoting stability in Nigeria’s foreign exchange market. The Bloomberg BMatch trading system, which went live on December 2, 2024, has enhanced efficiency and transparency in the official market.
- The CBN reiterated that the electronic FX matching system would continue to improve price discovery, address market distortions, and strengthen its ability to intervene, paving the way for a more stable and transparent foreign exchange system.
Additionally, the recent Eurobond issuance significantly boosted liquidity, at least in the short term. Nigeria returned to the international bond market earlier this month after a two-year hiatus, successfully raising $1.77 billion.
US dollar index holds at a two-year high
The US dollar index, which measures the greenback’s strength against six other major currencies, reached its highest levels since November 2022.
- This surge followed Wednesday’s hawkish 25 basis point (bps) rate cut by the Federal Reserve (Fed), which reduced its benchmark lending rate to a two-year low of 4.25%–4.50%.
- The Fed’s cautious stance on further rate cuts caused US Treasury bond yields to jump by more than 2% on Wednesday, strengthening the US dollar.
- Fed Chair Jerome Powell emphasized the need for caution in implementing additional cuts, given that inflation is projected to remain above the 2% target.
- The Fed noted improvements in labor market conditions but highlighted the strength of economic activity. According to the Fed’s Summary of Economic Projections (SEP), or “dot plot,” only two rate cuts are anticipated in 2025, down from the four cuts forecasted in September.
- The US dollar index remained well-supported, consolidating around the 108 mark and holding near two-year highs due to a recent increase in Treasury yields and stable economic conditions in the US.
The Commerce Department reported that economic growth in the world’s largest economy exceeded earlier projections. Third-quarter gross domestic product (GDP) rose by 3.1%, an upward revision from the previously reported 2.8% increase.