Naira holds steady FX market amid US dollar strength, CBN reforms

The Nigerian naira maintained stability during the fourth trading session of the week, despite the US dollar index reaching a two-year high.

The Central Bank of Nigeria’s (CBN) ongoing reforms in the foreign exchange market have bolstered liquidity and confidence, with the naira closing at N1,540/$ on Thursday, marking a N5 gain from Wednesday’s N1,545/$ at the Nigerian Foreign Exchange Market (NFEM).

In the black market, the naira remained stable at N1,660 to the US dollar, though short sellers continued to dominate the unregulated market.

The demand for foreign exchange, particularly for fuel imports, travel, and overseas tuition, is expected to keep the naira above the N1,500/$ threshold at least until the Christmas holidays.

CBN’s recent efforts, including the introduction of the Bloomberg BMatch trading system on December 2, 2024, have enhanced efficiency and transparency in the official market.

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The electronic FX matching system is expected to improve price discovery, address market distortions, and strengthen CBN’s intervention capabilities, contributing to a more stable and transparent foreign exchange market.

Additionally, Nigeria’s successful return to the international bond market, raising $1.77 billion through a Eurobond issuance, has provided a short-term liquidity boost.

Meanwhile, the US dollar index, which tracks the strength of the US dollar against six other major currencies, reached its highest point since November 2022.

This surge followed a hawkish 25 basis point rate cut by the Federal Reserve, which lowered its benchmark lending rate to a two-year low of 4.25%–4.50%. US Treasury bond yields rose more than 2%, strengthening the dollar.

The Fed’s cautious approach to future rate cuts and an upward revision in the US third-quarter GDP growth to 3.1% have helped maintain the US dollar’s strength, consolidating the index around the 108 mark.