Naira strengthens against Pound as UK political tensions, market liquidity drive FX volatility

The Nigerian naira recorded notable gains against the British Pound sterling in the latest foreign exchange market trading, supported by shifting global sentiment and renewed uncertainty in the United Kingdom’s political and monetary environment.

Latest data from the Central Bank of Nigeria showed that the pound is currently being traded at around ₦1,840/£1 in the official market, reflecting a relatively stronger position for the naira compared to earlier in April when it weakened significantly.

The local currency, which had previously hit weaker levels in April, has shown signs of recovery and resilience through the first half of May, as improved liquidity conditions and market adjustments helped stabilize trading within a broader band of ₦1,825/£1 to ₦1,950/£1.

Market analysts attribute part of the recent movement to heightened volatility in the United Kingdom, where political tensions and uncertainty surrounding economic leadership have weighed on the British currency.

The pound reportedly came under pressure amid internal political disputes in the UK, including reported leadership challenges within the ruling Labour Party and renewed speculation around the stability of Prime Minister Keir Starmer’s administration.

In the foreign exchange market, traders noted that the naira has been reacting not only to global currency trends but also to domestic liquidity management efforts by the Central Bank of Nigeria, particularly interventions aimed at stabilising demand for foreign exchange.

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Analysts say the naira’s performance is increasingly tied to dollar inflows from oil revenues and foreign portfolio investments, which remain critical in determining liquidity levels in the Nigerian Autonomous Foreign Exchange Market.

When dollar supply tightens in the official market, pressure typically shifts to the parallel market, leading to higher volatility and widening exchange rate disparities.

Market observers identified key technical levels, noting that immediate support for the naira-pound pair lies around the ₦1,750–₦1,800 range, while resistance is seen near ₦1,880–₦1,900. A sustained break above ₦1,900 could trigger renewed pressure toward the ₦2,000 psychological threshold, often associated with stress in the parallel market.

Despite recent gains, analysts caution that Nigeria’s exchange rate environment remains structurally sensitive due to ongoing macroeconomic adjustments, including subsidy reforms, inflationary pressures, and exchange rate unification policies.

Nigeria, Africa’s largest economy, continues to grapple with elevated inflation, which has eroded purchasing power even during periods of improved foreign exchange liquidity injections by the Central Bank.

On the global front, the British pound has also faced uneven performance against the US dollar, with spot trading hovering around 1.3430 in London sessions and struggling to break key technical resistance levels such as the 100-day exponential moving average.

Fundamentally, Sterling has been weighed down by mixed signals from the Bank of England regarding future interest rate decisions. Policymakers remain divided over inflation risks, wage growth projections, and the long-term impact of global energy price fluctuations.

A member of the Monetary Policy Committee, Swati Dhingra, suggested that interest rate hikes may not be necessary if inflationary pressures remain contained, while Catherine Mann warned that wage settlements could embed persistent inflation into 2027 expectations.

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Bank of England Governor Andrew Bailey noted that recent geopolitical developments have given policymakers additional time to assess economic risks, though markets still anticipate at least one potential rate adjustment in 2026.

However, analysts say Sterling’s upside remains constrained by political uncertainty in the UK, alongside a broadly strong US dollar index that continues to influence global currency flows.

In the United States, traders are also closely watching geopolitical developments involving Iran, with ongoing tensions over nuclear negotiations and strategic waterways adding to global market caution. Despite occasional optimism, investors remain sceptical about a durable US-Iran peace agreement.

Currency experts say these overlapping geopolitical and monetary uncertainties are contributing to increased FX volatility globally, indirectly shaping emerging market currency behaviour, including that of the naira.

For Nigeria, analysts maintain that while short-term gains against the pound are possible, long-term exchange rate stability will depend largely on sustained dollar inflows, inflation control measures, and continued reforms in the foreign exchange market structure.