The Naira posted its worst dip since April despite the weakening U.S. dollar index.
The dollar index, which measures the greenback against a basket of currencies, was barely on the 104-index point support line as traders awaited the U.S. Fed interest rate decision.
The Nigerian Naira declined for the fifth day in a row amid efforts by the Central Bank of Nigeria (CBN) to stabilize the market.
The naira traded at N1,644/$1 against the haven currency as the dollar index moderated significantly, while market players awaited America’s inflation data and the U.S. Federal Reserve’s interest rate decision due later in the day.
The naira’s loss in value this month has mainly been attributed to increased demand pressure from importers, payment of foreign school fees, and summer vacations by the Nigerian upper class.
Price action shows that naira bulls can’t hold the N1,600/$1 borderline, as an uptick in the CBN’s FX reserves moderated concerns in the country’s FX market. A break above that support line could set the local currency on a path to a February 24 low. The naira’s value against the greenback also moderated to record lows at the Nigerian Autonomous Foreign Exchange Market (NAFEX) yesterday.
FMDQ data revealed the local currency’s value dipped by N9.72 against the US dollar to trade at N1,621.12/$1, down from N1,611.40/$1 on Monday.
The CBN, via Hakama Sidi Ali, acting director of the CBN’s Corporate Communications Department, stated that the Nigerian apex bank is making efforts to stabilize the foreign exchange market.
Businesses are also impacted by the naira’s rapid volatility. Karl Toriola, the CEO of MTN Nigeria, provided additional context for the telco’s financial results. The revaluation of foreign currency-denominated commitments resulted in considerably larger net forex losses of N887.7 billion (H1 2023 restated: N454.7 billion) due to the naira’s devaluation between December 2023 and June 2024.
U.S. interest rate data takes the spotlight
The U.S. interest rate data is of great interest to currency traders. After its two-day meeting on Wednesday, the Federal Reserve is anticipated to highlight U.S. economic indicators, with the prognosis suggesting that the U.S. economy may be headed toward an interest rate cut in September.
The Federal Open Market Committee (FOMC) will likely indicate that cuts are planned, but they may not go so far as to declare a cut in September.
According to U.S. Commerce Department data issued on Friday, the core PCE price index the Fed’s preferred annual inflation indicator remained at 2.6% in June. June saw a 0.2% increase in the core PCE price index, picking up steam from May’s 0.1% month-over-month increase.
Moody’s Analytics projects two 25-basis point reductions in interest rates: one in September and one in December. Fitch Ratings also projects that the Fed will lower interest rates twice this year.
“The latest U.S. inflation and labour market data support our view that two reductions are likely in 2H24,” it stated on Monday.
However, the rating agency pointed out that increased political and geopolitical uncertainty is likely to cause an economic downturn in the largest economy in the world.
Consequently, the Bank of England is anticipated to announce a 25-basis point reduction in interest rates on Thursday, August 1, despite them being at their highest level since 2008. The choice is anticipated to be difficult; despite the UK’s inflation stabilizing in June at 2% year-over-year, in line with the BoE’s aim, wage growth is still strong in the nation.
Following a decline after the revelation of a significant public budget deficit—a figure that was anticipated—the pound steadied at 1.2866 USD versus the US dollar. Economists have long projected that the Bank of Japan (BoJ), which currently sets its key rate between 0% and 0.1%, may raise it again on Wednesday, July 31.