The Nigerian naira traded near its April low, while the dollar index approached a six-month high as anticipation of a Federal Reserve meeting kept traders largely biased towards the greenback.
The local currency maintained its price range at N1390 against the United States dollar in the official market and exhibited stability at 1,340/$ in the black parallel market on Wednesday morning.
The naira has consistently lost value over the past two weeks against the greenback in both official and unofficial foreign exchange (FX) markets due to increased speculative activity and inadequate liquidity.
The Association of Bureau De Change Operators of Nigeria (ABCON) disclosed the objective of creating a single retail foreign exchange market. The regulatory compliance of the Bureau de Change (BDC) subsector will be enhanced, and volatility will be addressed, as stated by ABCON President Aminu Gwadabe.
To establish a secure and robust forex market supportive of regulation and government, the association “will sustain its engagement with regulatory agencies, security operatives, and other government entities,” he declared.
The CBN chief recently addressed issues raised during the MPC meeting in March 2024, emphasizing the necessity of reducing negative real interest rates to attract capital flows and improve FX market liquidity.
To mitigate the impact of exchange rate pass-through on inflation, he stressed the need to attract capital flows through overseas portfolio investments and alleviate exchange rate pressures, particularly in Nigeria’s import-dependent economy.
The recent increase in the Monetary Policy Rate (MPR) and other rates, according to Bamidele Agoo, an MPC member, had a positive effect on the foreign currency market. She added that an additional MPR hike would further contribute to creating ideal conditions for reducing the volatility of the naira exchange rate.
The dollar is nearing a six-month high as investors anticipate the conclusion of a two-day Fed meeting later today. The dollar index and dollar index futures rose by 0.2% in London trade.
The U.S. Dollar Index, which measures the strength of the safe-haven currency against a basket of six major currencies, surpassed a key resistance level of 106.25 index points after the US PCE report revealed that price pressures remain elevated.
Currency traders anticipate that U.S. interest rates will likely remain unchanged; however, Fed Chair Jerome Powell is expected to provide a hawkish assessment of rates, particularly in light of several higher-than-expected inflation data.
The dollar’s gains on Tuesday were largely attributed to a higher-than-expected figure on the first-quarter employment cost index, which fueled concerns about persistent inflation.
It is currently anticipated that the Fed will begin tapering interest rates this year, potentially as early as September. Powell is also expected to provide additional hints regarding the trajectory of rates.