The Nigerian currency gained value against the haven currency in the first trading session of the week at both the official and parallel foreign exchange markets, ahead of the Christmas holiday.
The local currency mildly increased from N1,541.7/$1 last Friday to N1,539.55/$1, according to data from FMDQ.
The naira also closed at N1,650/$1 on the black market, compared to N1,660/$1 on Sunday, amid a choppy trading session.
President Bola Tinubu’s administration hopes to stabilize Nigeria’s exchange rate at N1,500 to the US dollar in 2025.
This would represent a slight improvement over the current exchange rate, which the president believes is essential for the budget’s implementation.
Tinubu made these announcements during a joint session of the 11th National Assembly in Abuja, where he presented the 2025 Appropriations Bill.
He also outlined several macroeconomic forecasts and reforms meant to lower inflation and fortify the national currency as part of a comprehensive plan to achieve this goal.
The CBN’s governor, Olayemi Cardoso, has publicly stated on multiple occasions that he is steadfast in his commitment to consistent policy, trust, transparency, and market liquidity support when needed to bolster confidence.
“Central banking’s currency is trust. The effectiveness of the institution’s policies declines if the public no longer has faith in it. Based on this knowledge, we have decided to use the EFEMs. By improving transparency and offering more precise supervision of foreign exchange transactions, we make it clear that the CBN takes the idea of just and efficient markets seriously,” he added.
U.S. Dollar Supported by Hawkish Fed Narrative
The greenback remained firm on Tuesday, supported by high bond yields and a still-strong U.S. economy, putting it in a strong position to face 2025.
- The dollar index, which compares the greenback’s strength to a basket of six other currencies, was trading near the 108-basis point mark.
- The dollar recently reached new year-to-date highs against its competitors and is predicted to stay strong after the Federal Reserve sounded more optimistic at its recent December meeting, according to a recent note from UBS analysts.
- Most economists believe that many of the president-elect’s promised policies will lead to inflation, driving up bond rates.
- Currency traders are primarily placing bets on a single rate cut, even though Fed members expect two rate cuts in 2025. However, a status quo remains a possibility.
In a recent note, UBS analysts stated, “We see less weakness in 2025 given these factors, and we are adjusting our forecast slightly, even though we still expect the dollar to weaken.”
Since the dollar has reached new highs in major exchange rates this year and fewer interest rate cuts are expected to be issued, there is a less pessimistic outlook on the currency.
Analysts stated, “The haven currency has been boosted by Fed rate cut prospects and tariff risks under Trump’s presidency.”
Markets predict that any progress toward parity will be fleeting. However, the European economy is projected to improve in the second half of the year, reducing the gap between European and U.S. bond yields.