In a surprising turn of events, the naira strengthened by N166 against the US dollar in the P2P market within just a few hours, leaving currency traders to rethink their strategies. What had initially peaked at N1279/$ on Thursday evening has now settled at a more favorable rate of N1113/$ at the time of this report.
Market observations suggest that this surge might be attributed to a lack of buyers, as few are willing to pay the higher rate of around N1300/$. This hesitation may reflect the growing optimism about the naira’s future stability.
Finance Minister Wale Edun has also revealed that the country is poised to receive a substantial $10 billion in foreign currency inflows over the next few weeks. This influx is expected to bolster liquidity in the foreign exchange market, which has been a hindrance to the growth of Africa’s largest economy. President Tinubu has signed two executive orders to facilitate the issuance of domestic financial instruments in foreign currencies and encourage the transfer of cash from outside the banking system into banks.
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Traders, especially speculators, are now contemplating the likelihood of further Naira appreciation against the dollar in the coming days. Consequently, they find themselves compelled to sell at lower rates.
President Tinubu, in his recent summit address, has assured attendees that he is committed to clearing the backlog and resolving liquidity issues in the foreign exchange market. He emphasized stringent monitoring of all transactions within the foreign exchange market, signaling a crackdown on arbitrage practices.
The government acknowledges that liquidity challenges have hindered the efficiency of Nigeria’s foreign exchange market. However, it is determined to take all necessary steps to rectify this situation. Plans are underway to streamline and restructure the foreign exchange market, ensuring that all legitimate transactions occur in the official market. Any unregulated activities will be penalized and deemed illegal.
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Meanwhile, on the global front, the US dollar has reached a near one-week high against a basket of currencies. This rise is attributed to a decrease in investor appetite for riskier currencies following disappointing corporate results, which have raised concerns about the state of the economy. Additionally, rising US Treasury bond yields have contributed to the shift in risk sentiment.
Federal Reserve Chairman Powell’s recent speech also had an impact on the markets. While he concurred with other officials that policy may need to be tightened further, his remarks did not definitively suggest a rate hike in December, leaving room for uncertainty.
The Fed’s intention is to convince the market that more rate increases are possible, contingent on a significant decline in inflation.
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