The wild dance of the naira against the US dollar in the official market has made people in the biggest economy in Africa more anxious.
As the U.S. dollar index concluded the week well amid positive economic data in the United States, the naira fell to its lowest point.
Amidst significant market volatility in the nation’s weak foreign exchange market, the naira hit an all-time low of N1,099.05/$ at the official market.
According to the FMDQ Securities Exchange, this naira dropped from its closing rate of N843.07 to the dollar on Thursday, shedding over one-third of its value.
Because the central bank has not yet paid out the outstanding foreign currency amounts owing in forward trades, the naira is trending closer to the level of the parallel market.
On the black market, the Nigerian currency did, however, remain somewhat stable as it traded on Saturday within the N1200 range.
The US dollar appreciated on Friday with the publication of new data showing that the labour market in the nation was still robust and that job growth in November had exceeded forecasts.
Last week, the U.S. dollar index increased by 0.3% to 104 index points, putting it on course for a small weekly gain after a difficult month in which it lost about 3% of its value.
It is likely that a move above 104.5 index points will accelerate the index rally and exert additional pressure on the naira.
On the other hand, price action patterns show that, consistent with its seasonal trend, the US dollar is losing momentum below or around 105.5. The US dollar index should then drop to below 103 index points, according to naira supporters.
On Friday, the Labour Department’s Bureau of Labour Statistics announced that, in the United States, there were 199,000 new nonfarm payroll jobs created in the previous month.
The world’s biggest economy employment data showed a 3.7% unemployment rate, which may have sparked financial markets’ unrealistic hopes that the US Federal Reserve will begin cutting interest rates in the first quarter of 2024.
In response to the report, short-term U.S. interest-rate futures traders on Friday lowered their wagers that the Fed will start cutting interest rates in March 2004 in favour of a more likely start to rate cuts in May.
The markets lowered their earlier estimates of a March start to Fed rate cuts to little less than 50%. The financial markets became less confident that the Federal Reserve would be able to turn around and begin cutting rates as early as the first quarter of 2024 after seeing the U.S. employment report.
Even though these data only span one month, the market remains cautious because they probably won’t have an impact on the outcome of the FOMC meeting the following week, particularly if the CPI figures continue to decline.
The strength of the labour market as it is being reported yesterday is unlikely to worry the Fed too much, so worries would need to be completely expressed by the markets before they could be publicly voiced.
