Naira breaks N1600/$ barrier as inflation eases amid global Dollar weakness

The Nigerian naira strengthened further against the U.S. dollar at the parallel market midweek, breaching the key psychological resistance level of N1600/$ and trading between N1585 and N1590 per dollar on the streets of Lagos and other major commercial hubs.

The bullish momentum comes as a confluence of domestic and international factors lifts investor confidence in the naira, notably improved inflation data, firmer oil prices, and global dollar softness.

Data released this week by the National Bureau of Statistics (NBS) showed Nigeria’s headline inflation eased for the first time in months, falling to 22.97% in May from 23.71% in April—a drop of 0.74 percentage points.

Analysts see the cooling inflation trend as a sign that the worst may be over, giving the Central Bank of Nigeria (CBN) more room to manage liquidity and stabilize the currency.

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Renowned economist Bismarck Rewane, CEO of Financial Derivatives Company, said the naira’s exchange rate would likely fluctuate between N1,600/$ and N1,650/$ in the official window over the next two months.

His outlook is based on tighter monetary controls by the CBN, aimed at reining in excess money supply that peaked in May 2024, and improving oil revenue inflows.

“Nigeria’s external fundamentals have strengthened. A rally in global crude prices is supportive of the naira, and fiscal measures are helping to temper inflationary pressures,” Rewane noted.

The global price of crude oil surged on heightened geopolitical risk premiums following escalating tensions in the Middle East.

The ongoing military exchange between Israel and Iran, now in its sixth day, has raised alarm over potential disruptions to oil supply routes, particularly the critical Strait of Hormuz, which handles nearly 20% of the world’s oil shipments.

In a stark warning earlier this week, UK Maritime Trade Operations reported increased electronic interference affecting vessel navigation systems, while two tankers reportedly collided and caught fire near the Strait, exacerbating fears of supply chain vulnerability.

READ ALSO: Naira begin new week on mixed note as CBN Reaffirms June deadline for BDC recapitalisation

Amid these developments, analysts predict other OPEC members could step in with spare capacity if Iran’s production—estimated at 3.3 million barrels per day (bpd)—is compromised. Iran remains OPEC’s third-largest oil producer.

Simultaneously, the dollar lost ground globally as investors reacted to worsening U.S. economic indicators and rising uncertainty ahead of the Federal Reserve’s interest rate decision. The dollar slipped against most major currencies, including the naira, as markets priced in a possible pause in rate hikes.

President Donald Trump’s escalating rhetoric against Iran has also added to market volatility. On Monday, Trump demanded Iran’s “unconditional surrender” and authorized a military build-up in the region. U.S. officials confirmed that more fighter jets were being deployed to reinforce strategic positions.

While the dollar had earlier gained about 1% against the euro, Swiss franc, and Japanese yen this week, it remains down by over 8% year-to-date, largely due to investor concerns over Trump’s trade and foreign policies, which have dented confidence in the U.S. economic outlook.

“The dollar remains a safe haven, but that safe haven status is being tested,” said a currency strategist at JPMorgan. “The geopolitical tension, coupled with weaker U.S. data, is eroding demand.”