The Nigerian Naira has been relatively stable against the US dollar in the official market over the past week, and the currency is expected to remain bullish this week on U.S. Fed rate cuts expectations.
The Naira experienced a net depreciation of roughly 0.2 percent last week, starting at about N1,446/$ and ending slightly weaker at N1,449/$.
It is projected to break through the N1446/$ resistance level this week despite strong demand on the black market.
This forecast aligns with broader late-2025 trends, supported by foreign inflows, even though parallel market rates showed greater volatility.
Federal Reserve interest rate cuts can strengthen the Nigerian Naira through several key economic mechanisms. Typically, the US dollar declines when the Fed cuts rates, as it did in September 2025 with a 25-basis point cut that lowered the federal funds rate to 4.00 percent from 4.25 percent.
This usually amplifies the US dollar devaluation because yield-seeking investors find American assets less attractive. This shift encourages capital flows into higher-yielding emerging markets like Nigeria, where interest rates remain high (via government bonds or stocks).
This helped stabilize the Naira and contributed to an overall appreciation of roughly 5.7% against the American dollar year-to-date, with the USD/NGN rate fluctuating around 1,450–1,470 in early December, especially if FX reforms continue.
A dovish Fed typically results in a softer US dollar, as lower US interest rates reduce the appeal of dollar-denominated assets. Additionally, decreased global borrowing costs ease Nigeria’s debt servicing on dollar-denominated loans, alleviating pressure on reserves and indirectly supporting the Naira.
Nigeria’s terms of trade have improved because of the Naira’s relative depreciation against the haven currency.
For example, it can lower the cost of imports like fuel and machinery, reduce inflationary pressures, and boost consumer spending. Increased capital inflows to emerging markets, such as Nigeria, where interest rates remain comparatively high, are encouraged by dovish policies (via the Central Bank of Nigeria’s Monetary Policy Rate).
The demand for the Naira and its reserves may be bolstered by this influx of foreign portfolio investments, stabilizing or increasing its value. A year-end NGN/USD rate of around N1,450/$ is projected by recent analyses, partly due to these inflows.
The CBN can lower rates without running the risk of a significant devaluation of the Naira, thanks to a weaker greenback and smaller global rate differentials. This environment contributed to Nigeria’s first rate cut in five years (in late 2025), which resulted in declining yields and an increase in stocks, thereby supporting currency stability.
Nigeria gains when dovish Fed policies increase global risk appetite, which frequently results in rising oil prices (Brent crude). Increased oil earnings bolster Nigeria’s foreign exchange reserves, which act as a buffer for the Naira.
The US Dollar Index (DXY), which measures the US dollar’s strength against a basket of six top global currencies, is trading lower at 98.9.
The DXY meltdown was impacted by rising expectations that the US Federal Reserve (Fed) will lower interest rates at its policy meeting in December. Due to recent reports of moderating inflation and weaker US economic data, markets anticipate a rate cut from the US central bank on Wednesday.
According to the CME FedWatch Tool, traders of Fed funds futures are now pricing in a nearly 90 per cent chance of a rate cut at the December meeting, up from 71 per cent a week ago. The Fed Chair Jerome Powell’s press conference could provide some clues about the direction of US interest rates.
According to the CME FedWatch Tool, traders of Fed funds futures are now pricing in a nearly 90 per cent chance of a rate cut at the December meeting, up from 71 per cent a week ago. The Fed Chair Jerome Powell’s press conference could provide some clues about the direction of US interest rates.
However, the DXY might benefit from any hawkish remarks made by Fed officials in the short term.
Morgan Stanley joined JPMorgan and BofA Global Research in stating on Friday that it now anticipates a quarter-percentage point rate cut from the Fed in December. Before this, all three brokerages anticipated that the Fed would maintain interest rates in December.
According to Ruggiero, “the dollar also continues to look overvalued relative to major peers, with the softer tone therefore fully justified.” Although US consumer sentiment improved in early December, data released on Friday did little to strengthen the dollar.
According to the BEA, the Personal Consumption Expenditures (PCE) Price Index rose by 0.3% in September following a gain of 0.3% in August.
The report, which was delayed by the recent government shutdown, revealed that the PCE Price Index increased by 0.2% after rising by 0.2% in August, excluding the volatile food and energy components.
Investors are also considering the possibility that White House economic adviser Kevin Hassett will succeed him as Fed chair when Jerome Powell’s term expires in May. It is anticipated that Hassett will advocate for additional rate reductions.