The Naira has been left vulnerable to market forces amidst the strengthening of the U.S. dollar index.
In the official foreign exchange market, the Naira continued its decline against the U.S. dollar, reaching N1,654.09/$1 on Wednesday, according to data from the Nigerian Autonomous Foreign Exchange Market.
The Naira’s official exchange rate weakened to N1,654.09/$1 on Wednesday, marking a rise of N1.07 from the previous day’s rate of N1,653.02/$1. Despite an increase in Nigeria’s foreign reserves—from $38.4 billion in September 2024 to $40.2 billion in October—the Naira has continued its sharp decline this year. Central Bank of Nigeria (CBN) Governor Olayemi Cardoso mentioned this at an investors’ event in Washington, D.C.
At the same event, Nigeria’s Minister of Finance and Coordinating Minister of the Economy, Wale Edun, explained the government’s decision to stop defending the Naira, allowing foreign reserves to grow naturally. Edun pointed out that previous interventions to support the currency were costly, amounting to $1 billion per month. He stressed that the goal is to boost the foreign exchange supply with minimal central bank involvement, although the CBN may intervene occasionally to stabilize the market.
Meanwhile, the U.S. dollar index surged, nearing its highest level since July 30. The dollar’s strength has been fueled by positive economic data that tempered expectations of Federal Reserve rate cuts. U.S. Treasury yields rose, with the 10-year note climbing 3.4 basis points to 4.24%. The dollar index, which tracks the currency against six major counterparts, increased by over 30 basis points to 104.43, with a peak of 104.57.
The Federal Reserve is expected to implement a smaller 25-basis-point rate cut at its upcoming November meeting, with an 88.9% probability of this outcome according to CME’s FedWatch Tool. Additionally, market activity is being influenced by the upcoming U.S. presidential election, with increasing expectations that a potential win by former President Donald Trump could lead to inflationary policies such as tariffs.
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