The Nigerian Foreign Exchange Market closed January 31, 2025, with the Naira appreciating significantly against the US dollar, reaching a rate of N1,474.78 per dollar, representing a gain of N63.72.

Data from the FMDQ Securities Exchange Limited and the Central Bank of Nigeria shows that this 4.14 percent increase marks the highest value for the local currency in seven months, with the last similar rate being on June 11, 2024, when it was N1,473.88/$ in the official market.

This significant jump is largely due to policies from the CBN that have shifted market dynamics and helped strengthen the currency.

Authorized currency dealers reported the dollar trading as high as N1,495.01/$ and as low as N1,447.50/$ at the NFEM.

The naira started the year at N1,538.50/$ on January 2, 2025, and gradually gained value throughout the month.

By January 3, it dipped slightly to N1,535.00 before fluctuating, reaching a peak of N1,560/$ on January 16.

However, from the third week of January, the currency began a more consistent appreciation, closing at N1,531/$ on January 24 and strengthening to N1,520/$ on January 28.

It continued to rise, ending at N1,506/$ on January 29 and N1,493/$ on January 30, before hitting N1,474.78/$ on the last trading day of January.

In the parallel market, the naira also appreciated against the US dollar, closing at N1,610/$ on Friday, down from N1,630/$ on Thursday, reflecting a N20 increase in just one day.

This recent trend highlights the effects of new monetary and foreign exchange policies from the CBN aimed at stabilizing the currency and boosting market confidence.

The launch of the Electronic Foreign Exchange Matching System in December 2024 has been a key factor in this positive shift.

The platform runs on Bloomberg’s BMatch system, enabling authorized dealers to submit anonymous orders into a central limit order book. This setup promotes transparency and helps with efficient price discovery in the foreign exchange market.

Thanks to this system, market distortions have been minimized, and the CBN has gained better oversight, making it easier to handle exchange rate fluctuations.

Another key element in the naira’s recent rise is the launch of the Nigeria Foreign Exchange Code on January 28, 2025.

“The FX Code marks a new era of compliance and accountability. It is not just a set of recommendations; this is an enforceable framework. Under CBN Act 2007 and BOFIA Act 2020, violations will be met with penalties and administrative actions,” said CBN Governor Olayemi Cardoso at the FX Code launch.

The FX Code lays out principles for ethical behavior, governance, execution, information sharing, risk management, and settlement processes among market players.

By aligning Nigeria’s forex operations with global standards, this initiative has boosted investor confidence and played a role in the recent positive changes in the currency’s performance.

At the close of 2024, the naira was at N1,535.00 per dollar on December 31, highlighting the ongoing challenges in the forex market.

However, the policy measures introduced by the central bank in early 2025 have helped stabilize the market, allowing the currency to gain significantly over the past month.

The increased transparency in the forex system has curbed speculative activities, ensuring that exchange rates more accurately reflect real market conditions.

That said, while the local currency is on the upswing, Nigeria’s foreign exchange reserves took a hit in January 2025, falling by $1.11 billion throughout the month.

On January 2, the CBN reported that the country's reserves were at $40.88 billion, but by January 30, they had decreased to $39.77 billion. 

This marks a 2.72% drop over the month. 

The decrease in reserves is linked to the CBN's ongoing actions in the foreign exchange market, along with external debt payments and capital outflows. 

Even though the naira saw a notable rise during the same period, the drop in reserves suggests that the CBN might have used some of its foreign exchange reserves to support the local currency and manage liquidity in the official market. 

At the beginning of January, reserves were still above the $40 billion threshold, starting at $40.88 billion on January 2 and staying around that level for the first half of the month. 

By January 10, reserves were at $40.75 billion, peaking at $40.96 billion on January 6 before starting to decline gradually. 

By mid-January, reserves had fallen to $40.42 billion on January 15 and further decreased to $40.05 billion by January 22. 

The most significant drops happened in the last week of January, with reserves dipping below $40 billion for the first time in months, reaching $39.99 billion on January 23 and $39.77 billion by January 30. 

With FX reserves at a three-month low, the ongoing reduction points to increased demand for foreign exchange and potential actions by monetary authorities to keep the exchange rate stable. 

This current decline mirrors a notable drop in April 2024, when reserves fell by $2.16 billion in just 29 days. 

At that time, Cardoso explained that the decline was due to debt servicing and other financial commitments rather than efforts to stabilize the naira.