The Nigerian naira closed the first trading session of the week on a positive note, appreciating by 0.37% to N1,531.2/$1 in the official foreign exchange market from N1,537/$1 last Friday.
Despite this marginal gain, market volatility remains high, with the naira fluctuating between N1,480/$ and N1,600/$ in recent weeks, according to data from the Central Bank of Nigeria (CBN).
Persistent Pressure on the Naira
Key factors influencing naira volatility:
- Nigeria’s heavy reliance on fossil fuels for foreign exchange earnings.
- Trade tensions between the U.S. and major partners affecting global energy demand.
- Speculative attacks and foreign exchange pressures despite CBN’s intervention.
The Bureau De Change Operators of Nigeria warn that while CBN’s recent measures to inject more foreign exchange into the market may offer temporary relief, they do not resolve the underlying structural issues in Nigeria’s forex market.
U.S. Dollar Strengthens on Trade and Economic Developments
Meanwhile, the U.S. dollar continued its bullish run, with the U.S. Dollar Index (DXY) marking a four-day winning streak.
Key drivers of the dollar’s rise:
- Trump’s tariff strategy shift: Some countries may receive exemptions from new levies, easing market concerns.
- Venezuela sanctions: The U.S. revoked Chevron’s operating license, affecting global energy markets.
- Stronger U.S. economic data: S&P Global’s flash PMI report showed resilience in the services sector, pushing U.S. yields higher.
- Federal Reserve uncertainty: Atlanta Fed President Raphael Bostic cautioned that inflation progress might be slower than expected, dampening hopes for a 2025 rate cut.
Market Outlook
Despite the naira’s slight appreciation, continued global uncertainties, forex demand pressures, and Nigeria’s structural economic challenges suggest that volatility will persist in the near term.
Meanwhile, the U.S. dollar’s strength amid shifting trade policies and hawkish Fed signals could further impact emerging market currencies, including the naira.
