The naira, the currency of Africa’s biggest economy, has had a bad week. It hit a new low on the official market. This is due to the demand for this haven currency.
On the unofficial exchange market, where the naira is freely traded, its decline has become even more pronounced. The rate of N1,186/$1 on the P2P market, where forex is secretly traded through the crypto market, shows that the rate is still declining.
The Foreign Exchange Market and Central Bank Intervention
The CBN plans to intervene periodically in the foreign exchange markets to support liquidity. However, speculators still have influence after an eight-year prohibition on certain items obtaining dollars on the official market has been lifted.
The dollar dynamics of foreign exchange markets and central bank intervention have performed well against a wide range of currencies. However, over the last week, it has fallen against the euro, as well as gold, silver, and bitcoin. U.S. stocks have also declined, while 10-year US Treasury rates rose to a record high.
CBN relaxed foreign exchange controls in mid-June after President Tinubu criticized his monetary policies and promised to abolish the country’s current exchange rate system.
Nigeria’s foreign currency market is still illiquid, despite the CBN’s decision to lift restrictions on the dollar supply. Foreign exchange debts are also unresolved.
Nigeria has been struggling to increase its dollar reserves for many years, as falling oil revenues have put the country’s foreign exchange reserves in danger. .
Global Economic Conditions Impact on Nigeria’s Currency Woes
Due to the fact that the US labor market and economy are strong, Nigerian speculators have a greater appetite for greenbacks.
Jerome Powell, Chairman of the Federal Reserve Board, recently said that additional interest rate increases might be needed.
As benchmark Treasury yields creep dangerously near 5%, concerns about interest rate increases grow.
Loretta Mester of the Federal Reserve Bank of Cleveland stressed on Friday the importance of answering persistent questions regarding the central bank’s forthcoming decisions.
Mester’s comments following his speech to the Shadow Open Market Committee in New York
Limiting speculation about future increases in the federal funds rate could provide stability and help businesses and markets adapt to future increases. >>
It is not clear what will happen to interest rates in the future.
Concerns about inflation and market volatility
Mester is in favor of a second rate hike this year that would bring the federal funds rate up to 575 percent. She said that the central bank is nearing the end its cycle of interest rate increases despite the possibility of further increases.
The Fed official who will vote in the Fed’s rate committee in 2024 testified that there have been great strides made in the Fed to reduce inflation.
The model also predicts an economic downturn and a decline in the employment market. Charles Evans was credited by Mester in 2012 for his contribution to the establishment of specific standards regarding interest rate increases.
Fed funds futures give a mere 2% chance that rates will increase next month, and 25% by the end of the year.
The lack of clarity in the market has led to an increase in volatility as a result of the increasing conflict in Israel.