Naira shows stability in official market, maintains N1,550/$ bandwidth
The Nigerian naira remained stable in the official market during the second trading session of the week, as demand for the US dollar eased.
According to data from the Central Bank of Nigeria (CBN), the naira closed at N1,534 per dollar on Tuesday, showing a slight depreciation from the N1,533.56 recorded on Monday via the Electronic Foreign Exchange Matching System (EFEMS).
Despite high inflation levels, the naira maintained resilience in the official market. The National Bureau of Statistics (NBS) reported that Nigeria’s inflation rate rose to 34.60% in November 2024, up from 33.88% in October. The naira traded within a range of N1,665/$, influenced by demand from importers, currency hedgers, and other non-financial users, even as the official market benefited from stronger fundamentals.
The naira’s outlook has improved, supported by CBN reforms aimed at enhancing efficiency and transparency in the foreign exchange market.
Banks and authorised dealers now utilise Bloomberg’s BMatch platform for spot transactions involving the naira and the dollar. The EFEMS system also enables direct negotiations by publishing real-time buy/sell orders and prices.
The International Monetary Fund (IMF) has endorsed the naira’s recent stability, as noted in its October report. The IMF credited this trend to the CBN’s efforts to address foreign exchange backlogs and recent interest rate adjustments.
Dollar Index Hits Three-Week High
Meanwhile, the US dollar index maintained its position at three-week highs, with traders closely monitoring potential Federal Reserve policy updates.
The dollar index and its futures stabilised during Asian trading, holding steady after recent gains. While markets widely expect the Federal Reserve to reduce interest rates by 25 basis points, speculation remains around a potentially hawkish stance due to strong labour market data and persistent inflation.
Analysts, including those from Goldman Sachs, anticipate the Fed will keep rates unchanged in January and adopt a gradual approach to rate cuts in 2025. Retail sales data for November, which exceeded expectations, supports this outlook, along with policies expected under President Donald Trump’s new administration.
Global Central Banks in Focus
Several central banks in Asia, including those in the Philippines, Thailand, Indonesia, and Japan, are also expected to announce their monetary policy decisions this week, providing additional insights into the region’s economic direction heading into 2025.
Mid-Term Dollar Outlook Remains Bullish
Analysts from Bank of America (BofA) predict the dollar will maintain its strength against G10 currencies in the coming months, driven by the resilience of the US economy. However, this trend is expected to reverse in the latter half of 2025 as the impact of economic growth under a pro-business Trump administration begins to wane and the Fed introduces further rate cuts.
“In the near term, we expect the dollar to remain supported by the US economy’s continued outperformance,” said BofA analysts. “However, the dollar’s strength is likely to taper off later in 2025 as market focus shifts to the longer-term impact of US policies and additional Fed rate reductions.”
The dollar’s dominance may soften as the year progresses, providing a shift in momentum for global currency markets.
Source: Nairametrics
