The past week has been unpleasant for Africa’s largest economy’s currency as the naira hit a fresh low in the official market no thanks to the insatiable demand for the haven currency.
The naira’s decline on the unofficial market, where it traded freely, grew even more severe. The exchange rate being quoted for N1,186/$1 at the P2P, where forex is traded covertly through the crypto market, indicates that the exchange rate is still steadily declining.
The CBN intends to periodically intervene in the foreign exchange market to support liquidity, but speculators continue to have sway after an eight-year ban on certain items obtaining dollars on the official market was lifted
The dollar has Dynamics of Foreign Exchange Market and Central Bank Intervention well against a variety of other currencies, but over the past week it has declined against the euro, gold, silver, and Bitcoin U. S. Stocks fell, and the 10-year U.S. S. Treasury yields rallied to a 16-year high.
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Following President Tinubu’s criticism of monetary policy actions and his vow to end the country’s multiple exchange-rate system, the CBN loosened foreign exchange controls in the middle of June.
However, Nigeria’s FX market remains illiquid despite the CBN’s decision to remove restrictions on the dollar supply coupled with uncleared FX backlogs
Nigeria has been grappling for years to increase the supply of dollars since declining oil revenue put its foreign exchange reserves in jeopardy.
Consequently, speculators in Nigeria’s FX market amplify their appetite for the greenback amid the United States economy’s resilience and the tight labour market.
Federal Reserve Chairman Jerome Powell recently suggested that further interest rate increases may be necessary.
Concerns about interest rates rising steadily increased as benchmark Treasury yields came dangerously close to the 5% mark.
Loretta Mester, president of the Cleveland Federal Reserve, emphasized the significance of reducing constant queries about the upcoming decisions of the central bank on Friday.
Mester made the following comment while addressing the Shadow Open Market Committee in New York:
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“Limiting speculation about federal funds rate hikes at every meeting could offer helpful stability to firms and markets adjusting to forthcoming hikes.”.
The Fed official, who is scheduled to vote in the Fed’s interest-rate committee in 2024, attested to the fact that the Fed has made tremendous strides in reducing inflation.
She also forecasted a slowdown in the job market and an economic downturn. In 2012, Mester recognized the contribution of Charles Evans in establishing particular standards for interest rate hikes.
That being said, the Federal Reserve’s future path regarding interest rate hikes remains unclear; federal funds futures assign only a 2 percent chance of a rate hike next month and a 25 percent chance by year’s end.