The Nigerian currency showed strength in the black market but dipped for the third consecutive time against the dollar at Nigeria’s official foreign exchange market.
The naira fell to N1,499.76/$1 on Wednesday from N1,498.95/$1, according to FMDQ data.
However, it appreciated by N20 in the parallel market, trading at N1,585/$1 from N1,605/$1.
Currency traders in Nigeria’s business capital attributed this movement to the Chinese New Year holiday and the market’s reaction to the Central Bank of Nigeria’s (CBN) announcement of the foreign exchange code as key triggers behind a decline in dollar demand, boosting the naira’s value.
Additionally, some traders who held sizable dollar reserves sold their holdings, increasing supply in anticipation of reduced demand and exchange rate fluctuations.
In response, the CBN under Governor Yemi Cardoso updated its guidelines to improve Bureau de Change (BDC) operations in Nigeria.
These guidelines outline acceptable practices for BDCs, including purchasing foreign currency from designated entities and handling business and personal travel expenses.
Furthermore, the CBN replaced the old over-the-counter system with an automated foreign exchange transaction process to enhance market efficiency and oversight.
Recent trends indicate increased dollar liquidity in Nigerian banks. Customers seeking Business Travel Allowance (BTA) and Personal Travel Allowance (PTA) are now having their requests honored more frequently.
The U.S. dollar index, which measures the greenback’s strength against six major peers—including the British pound, Euro, and Swiss franc—stood at 107.81 index points at publication, not far from its overnight low of 107.29. Earlier this week, the index surged to a three-week high of 109.88.
Former U.S. President Donald Trump signaled readiness to impose 25% import tariffs on Canada and Mexico, though both countries received last-minute one-month reprieves.
Meanwhile, Washington imposed 10% tariffs on China. In response, China introduced retaliatory tariffs on U.S. goods, following failed attempts by U.S. President Joe Biden to engage Chinese President Xi Jinping in trade discussions.
Most economists agree that trade tariffs could increase U.S. inflation, prompting the Federal Reserve (Fed) to maintain higher interest rates for an extended period. Additionally, a weaker-than-expected U.S. ISM Services report raised the probability of another interest rate cut later this year.
Chicago Federal Reserve President Austan Goolsbee cautioned on Wednesday that it would be a mistake to overlook the possible inflationary impact of tariffs, pointing to the COVID-19 pandemic’s experience, in which supply chain disruptions increased inflation.
According to Goolsbee’s prepared remarks for the Fed’s regional bank’s annual auto symposium in Detroit, the economy is robust, the labor market is “plausibly” at full employment, and inflation is closer to the Fed’s 2 per cent target.
“But we now face a variety of new supply chain challenges – from natural and man-made disasters, such as hurricanes and wildfires, to bridge collisions that shut down major ports, clogged canals, and threats of dockworker walkouts; geopolitical disruptions; immigration; and, of course, the threat of significant tariffs and the potential for an escalating trade war,” Goolsbee described new supply chain challenges.
“But we now face a variety of new supply chain challenges – from natural and man-made disasters, such as hurricanes and wildfires, to bridge collisions that shut down major ports, clogged canals, and threats of dockworker walkouts; geopolitical disruptions; immigration; and, of course, the threat of significant tariffs and the potential for an escalating trade war,” Goolsbee described new supply chain challenges.
“The Fed will be in a tough position: It will have to decide whether inflation is due to overheating or tariffs if we see rising inflation or stagnant progress in 2025,” Goolsbee stated.
Making that distinction will be essential in determining whether or not the Fed should take action.