The naira regained strength against the haven currency over the weekend, breaking below the N1,300 resistance level at the parallel market, to settle at N1270-75 against the dollar as the U.S Fed Reserve Bank meets on interest rates.
The new rate represents a 10% increase when compared to N1,400 to a dollar it traded at the close of business activity on Friday.
The naira’s quick gain at the close of April comes after a surge in demand for dollars in the parallel market driven by banks and end-users, combined with slow forex disbursement to Bureau De Change (BDC) operators by the Central Bank of Nigeria (CBN).
These caused the Naira, last week, to fall by 23 percent against the dollar, thus recording the worst weekly Naira performance of the since February.
Currency dealers had earlier attributed the moderation in the naira’s bullish momentum to the CBN’s sluggish pace of disbursement.
They observed that some BDCs received dollar disbursements in small amounts while other BDCs did not get dollars for almost two weeks following naira payments to the Nigerian apex bank.
The fortune in the naira took a new path as the Economic and Financial Crimes Commission (EFCC) launched an additional offensive against currency traders and online platforms that are manipulating the value of the naira.
According to the FG agency, 34 alleged currency speculators were taken into custody by its agents affiliated with the Taskforce on Currency Mutilation, Dollarization of the Economy, and Forex Malpractice on suspicion of engaging in foreign exchange fraud.
In addition, the EFCC will now be able to block 1,146 accounts linked to an ongoing investigation for “offenses of dealing in unauthorized dealing foreign exchange, money laundering, and terrorism financing,” thanks to an order from the Federal High Court.
The Nigeria Senate, via its Committee on Finance, demanded that all pertinent parties take coordinated measures to save and maintain its stability. The lawmakers declared that coordinated efforts were desperately needed to address the instability and ongoing depreciation of the Naira.
The dollar index was marginally within its five-month high the dollar posted significant gains for April as most predictions of an early rate drop by the Fed had been priced in by markets.
At the time of writing, the Dollar Index, which compares the value of the US dollar to a basket of six major currencies, decreased from 105.8 to 105.77 index points.
Bull wagers came to a head on Friday when the Fed’s favorite inflation indicator, the PCE price index, showed higher-than-expected March readings.
The Fed meeting is now the main event of this week. The central bank will likely maintain stable rates and possibly present a cautious perspective, considering the recent volatility in U.S. inflation.
Market estimates for the first interest rate cut’s timing have been pushed back to December due to elevated inflation, robust activity, and positive jobs figures.
We believe there is still room for a September rate reduction. However, the Federal Reserve will continue to exercise caution and indicate that interest rates will rise if inflation continues to be high.
The idea that higher-for-longer rates is likely to be detrimental to the naira led most market analysts to believe that the CBN would maintain rates high to maintain investor interest in the currency.
