The Naira settled at N1,550 against the U.S dollar; at the unofficial market from N1,550/$ Settlement price on Sunday while the greenback remained at elevated levels in the global foreign exchange market.
However, on the Nigerian Foreign Exchange Market (NFEM), the local currency value dipped to N1,536.99/$.
The spread between the NFEM rate and the parallel market shrank from N15 to N3.01 against the American dollar.
The naira’s fundamentals improved amid an uptick in the country’s FX holdings. According to CBN Governor Olayemi Cardoso, the reserves, which are at a four-year high, could cover imports for up to ten months. The federal government’s ongoing economic reforms have had a positive impact on the long-term stability of the naira, the sustained accumulation of reserves, the drop in inflation, and the decline in commodity prices.
The CBN, led by Olayemi Cardoso, implemented FX reforms that contributed to the accretion of reserves. The Federal Government’s new policies have also boosted domestic production as shown by companies’ earnings in the Nigerian stock market, ease the pressure on foreign demand, and lower domestic prices have been crucial to macroeconomic stability.
The Nigerian apex bank is expected to maintain the forex reforms while the fiscal authority steps up efforts to boost foreign exchange earnings, particularly from gas, oil, and non-oil exports
The US Dollar Index, which compares the US dollar’s strength against six major currencies, stabilized after reversing daily losses and hovering around 98.40.
The US dollar’s upside was marginally weak as concerns about the independence of the Federal Reserve (Fed) were raised by remarks made by US President Donald Trump.
Trump announced that Cook would be relieved of her post on the Fed’s board of directors. Cook stated that she would not step down and would instead continue to perform her duties. Trump will have more influence over Fed policy since he can appoint a replacement for Fed Governor Cook. Additionally, Fed Chair Jerome Powell stated during the Jackson Hole symposium.
Market action showed US Treasury yields may attract foreign investment into US bonds and other USD-denominated assets, which further appreciates the greenback. The yields on US Treasury bonds for the two and ten-year maturities are 3.7 percent, respectively.
U.S Fed chief, Powell’s remarks implied that the American Central Bank has finished raising rates and is preparing to begin a cycle of rate cuts.
However, the forthcoming data will determine how quickly those cuts are implemented. U.S Fed Reserve officials are divided; some are concerned about slowing job growth, while others focus on inflation risks. This suggested a path of gradual easing rather than a single rate cut in September.
Core PCE inflation and GDP data are the two major releases that markets will be closely monitoring this week. A lower-than-expected PCE would allow the Fed more leeway to lower rates, increasing the likelihood of a September move and exerting pressure on the US dollar.
Powell’s worries about jobs would be supported if weekly employment data revealed a significant slowdown, which might lead to additional selling of US dollars.
However, markets might assume that even though a September cut is feasible, the Fed will postpone further cuts this year if the data is strong. That might aid in the US dollar’s recovery.