The Nigerian naira weakened against the US dollar in both official and parallel foreign exchange markets, closing at N1,328.50 per dollar at the Nigerian Foreign Exchange Market (NFEM), according to data from the Central Bank of Nigeria (CBN). The 0.05% depreciation followed the CBN's reduction of its benchmark interest rate, while tighter liquidity and rising dollar demand added pressure on the local currency.
Official and Parallel Market Rates Diverge
At the official window, the naira settled at N1,328.50 per dollar, reflecting a marginal 0.05% decline from the previous session. The parallel market saw a more pronounced drop, with the currency weakening by 0.51% to N1,387 per dollar amid increased demand for foreign currency. This movement widened the gap between the two markets, with the FX spread increasing to about N59 per dollar from N52 in the prior session.
According to a report by MarketForces Africa, a widening gap between the official and parallel markets can indicate differences in dollar supply and demand across the official and informal segments. The divergence highlights the ongoing liquidity constraints in the foreign exchange market, even as the CBN adjusts its monetary policy stance.
Naira Gains Against Pound and Euro
Despite its weakness against the dollar, the naira strengthened against some major currencies. According to the CBN's daily foreign exchange report, the local currency settled at N1,762.92 against the British pound and N1,514.89 against the euro at the official window.
Meanwhile, Nigeria's gross external reserves increased further to $54.808 billion, providing a stronger buffer for the economy amid volatility in global financial and commodity markets. The reserves buildup comes as the CBN continues to manage monetary conditions following its 350-basis-point cut in the Monetary Policy Rate (MPR) to 23%, a move that has drawn attention from market analysts.
Oil Prices Rise Above $102 per Barrel
Global oil prices remained elevated, with Brent crude climbing 2.16% to $102.54 per barrel amid uncertainty surrounding the reopening of the Strait of Hormuz. The latest increase pushed Brent's year-to-date gain to 68.51%. However, plans by Saudi Arabia to restart exports through its East-West pipeline, alongside signs of progress in US-Iran talks, helped limit further increases in crude prices.
Higher oil prices can potentially support Nigeria's foreign exchange earnings because crude remains a major source of export revenue, although the overall impact depends on production and export volumes, as noted in the report.
Global Markets and Outlook
In international markets, higher US interest rates and elevated Treasury yields continued to put pressure on emerging-market assets. Expectations surrounding US-Iran talks also reduced some demand for safe-haven assets, with gold declining 0.84% to $4,327.15 per ounce and down 0.69% since the beginning of the year.
For Nigeria, movements in oil prices, global interest rates and domestic dollar liquidity are likely to remain important factors shaping the naira's performance in the foreign exchange market. Legit.ng earlier reported that the naira may depreciate following the CBN's rate cut, according to Bismarck Rewane, Managing Director of Financial Derivatives Company, who said the lower interest rate could reduce returns on naira assets and put pressure on the currency.
