Naira loses grip on black market as US dollar takes the lead

The US dollar index returned to the forefront on Wednesday, making modest gains after earlier losses on renewed bets on Federal Reserve rate cuts this year, while the naira traded near its low amid of high demand for the safe haven currency in Africa’s largest economy.

On the NAFEM spectrum, the naira fell to N1,416.57 per dollar from N1,354.21 per dollar on Monday, according to FMDQ data.

On the black market, the value of the naira fell from N1,410 per dollar on Monday to N1,415 per dollar on Tuesday.

Consequently, the rate spread between NAFEM and the parallel market fell from N55.79 per dollar on Monday to N1.57.

The price action highlights that naira short sellers took control in May, amid dwindling FX liquidity, while bears settle on the N1400 price support. The other reason is profit taking among Nigerian naira holders who have started returning to the dollar despite the clampdown by the Economic and Financial Crimes Commission (EFCC) against forex traders in Abuja and Lagos.

The Securities and Exchange Commission (SEC), acting on behalf of the Federal Government, plans to remove the naira from all peer-to-peer cryptocurrency platforms to stabilize the country’s foreign exchange market amid a crackdown on traded digital assets through unofficial channels.

This measure coincides with the Federal Government’s increased efforts to combat dollar blackmail and exchange rate manipulation.

The country’s financial watchdog claimed that certain entities manipulated the value of the naira and the exchange rate through the use of P2P networks.

Emomotimi Agama, the recently appointed Director General of the SEC, verified that the government was working on a new set of regulations to control the cryptocurrency industry.

US Dollar Index Resumes Uptrend

The US dollar index, which measures the strength of the greenback against the Japanese yen, the euro, the British pound sterling and three other major pairs, rose 0.14% to 105.5 points, adding to the advance of 0, 3% from Tuesday.

Even though last week’s non-farm payrolls (NFP) data fell short of expectations, the price action indicates that the US dollar is likely to find support this week.

The dollar has continued its bullish trend despite a weaker-than-expected jobs report and attempts by Federal Reserve officials to dispel talk of a rate hike.

Although the US central bank has reinforced expectations that rates will likely fall towards the end of the year, investors are still closely monitoring it and the timing of the Fed’s rate cuts, which will likely impact currency movements and will further strengthen the dollar against most currencies including the naira.

The amount of rate cuts priced into the market has not changed, despite comments Tuesday from Minneapolis Federal Reserve President Neel Kashkari that it is premature to declare that inflation has stopped.

On Monday, other members of the Federal Reserve reiterated statements made Wednesday by Federal Reserve Chair Jerome Powell about the current unlikelihood of rate hikes.

The central bank will “eventually” lower interest rates, according to New York Federal Reserve President John Williams, but did not specify when.

Thomas Barkin, a senior Federal Reserve official, also said the current interest rate environment is tight enough to cool the U.S. economy and return inflation to the central bank’s target of 2%. This week’s economic calendar is light, with Friday’s University of Michigan Consumer Confidence Index as the focal point.