Data from the Central Bank of Nigeria (CBN) indicated that the naira depreciated to N1,538 against the U.S. dollar in the official market on Tuesday, compared to N1,536 on Monday at the Nigerian Foreign Exchange Market.
In the black market, the naira remained stable at N1,660 to the dollar.
The parallel market showed stability, contrasting with the minor fluctuations observed in the official foreign exchange market. This trend suggests that activities in the unofficial market are gradually adapting as the new year progresses.
In February, the naira faced its most significant drop in 2024, plummeting to N1,910/$ in the black market, despite trading around N1,700 in the official market. The local currency has lost over a third of its value this year, largely due to the federal government’s aggressive currency reforms, which included a shift to a floating exchange rate.
However, the naira saw a notable recovery following the introduction of the Electronic Foreign Exchange Matching System (EFEMS), gaining over N120/$ in value within a month. The CBN implemented the EFEMS as part of a broader strategy aimed at reducing speculation and enhancing transparency in Nigeria’s foreign exchange market.
U.S. Dollar begins the new year on a strong note
The U.S. dollar demonstrated significant stability on Wednesday, supported by elevated Treasury yields following positive economic data from the United States.
While the economy remains strong, there are signs that inflation risks may be resurfacing, as data indicated a healthy labor market. The Job Openings and Labor Turnover Survey (JOLTS) reported 8.09 million job openings in November, surpassing the 7.83 million recorded in October and exceeding the 7.7 million forecast.
The downside for the dollar appears limited, bolstered by high demand for safe-haven assets amid geopolitical tensions and potential trade war escalations. The Federal Reserve is anticipated to lower borrowing costs by 37 basis points by the conclusion of 2025.
However, the initial reduction is not expected to be fully reflected in the market until July. In contrast, the European Central Bank is projected to implement 99 basis points of easing within this year.
The safe-haven currency retains a bullish outlook, supported by technical indicators that are trending upward. The dollar index has shown robust underlying support, successfully maintaining its position above the 20-day Simple Moving Average (SMA).
Barring any significant risk reversals, the index is likely to stay elevated due to persistent demand for U.S. assets and higher yields, despite potential minor pullbacks from short-term overbought conditions. Investors will closely examine upcoming data to gauge when the Fed might next reduce rates, particularly focusing on the payrolls report scheduled for release on Friday.
Following an increase of 227,000 jobs in November, non-farm payrolls are expected to have added approximately 160,000 jobs in December, as indicated by a Reuters survey. The market continues to adjust its expectations for potential rate cuts this year, amid a jobs market that is slowing but not collapsing, alongside ongoing concerns about high inflation and steady growth.