The rally has been underpinned by increased foreign currency inflows from remittances and foreign portfolio investments (FPI). Nigeria’s external reserves climbed by $1.72 billion in recent weeks to $41.3 billion, giving the Central Bank of Nigeria (CBN) more capacity to intervene and stabilize the currency.
CBN Governor Olayemi Cardoso noted that diaspora remittances surged by 200% to $600 million in the last two months, strengthening liquidity in the foreign exchange market. Foreign portfolio inflows also improved, rising from $1.5 billion in June to $1.7 billion in July, amid renewed global investor interest under carry trade conditions and relatively stable global markets.
According to Cardoso, improved official exchange rates and digital remittance services have discouraged the use of parallel channels by Nigerians abroad. He emphasized that increasing diaspora flows could help Nigeria reduce reliance on oil revenue and diversify its foreign exchange sources.
PwC had earlier projected that the naira would remain broadly stable through 2025, supported by CBN’s ongoing reforms and steady capital inflows. Analysts said the uptick in black market trading reflected reduced speculative pressure and growing confidence among traders. Still, they cautioned that rising domestic dollar demand and a firmer U.S. dollar could cap further gains.
Dollar Index Softens Ahead of Key U.S. Labor Market Data
Globally, the U.S. dollar started September on a weaker note. The U.S. Dollar Index, which measures the greenback against six major peers, was flat after four consecutive losing sessions, trading around 97.70 on Monday. Markets were closed for the Labor Day holiday, with investor focus shifting to this week’s employment data.
Traders are awaiting the release of nonfarm payrolls, preceded by private payroll and job openings data. Any downside surprise could boost expectations for a larger Federal Reserve rate cut later this month. Futures markets are currently pricing in an 88% probability of easing, with debate over whether the cut will be 25 or 50 basis points.
Fed officials have signaled openness to lowering rates. San Francisco Fed President Mary Daly said over the weekend that inflation linked to tariffs was likely temporary and that policymakers were nearing readiness to ease policy.
Meanwhile, political pressure on the Fed remains in focus. A U.S. appeals court recently ruled most of Donald Trump’s tariffs unlawful, while the former president has clashed openly with Fed leadership. His efforts to dismiss Governor Lisa Cook, criticism of employment data, and moves to install loyalists have raised questions about the central bank’s independence.
Despite political turbulence, Fed Chair Jerome Powell is expected to serve out his term until 2026. However, analysts warn that a more politicized Fed could accelerate rate cuts in line with Trump’s preferences, even as tariffs raise costs for U.S. households and risk worsening an economic slowdown.