Naira Opens New Month With Surprise Surge Against Weakening Dollar
The Nigerian naira has commenced the new month with remarkable momentum, capitalizing on a sharp decline in the value of the US dollar across the country's foreign exchange markets. At the conclusion of the five-day trading week, the local currency recorded its strongest performance in nearly two years, reinforcing growing optimism surrounding the stability of the foreign exchange market.
Official Market Records Significant Weekly and Daily Gains
At the official Nigerian Foreign Exchange Market, the dollar fell to N1,386.55 on Friday. This represented a gain of N35.08 for the naira, equivalent to 2.53 percent, compared with the N1,421.63 recorded at the end of the previous week. Trading data from the Central Bank of Nigeria revealed that the naira opened the week at N1,418.95 per dollar before strengthening steadily to close at N1,386.55.
This translates to a weekly appreciation of N32.40, or 2.34 percent. On a day-on-day basis, the currency gained further ground on Friday, appreciating by N10.44 or 0.75 percent from Thursday's close of N1,396.99. The consistent upward movement underscores improving confidence and liquidity in the official foreign exchange window.
Parallel Market Also Experiences Relief and Appreciation
The positive trend extended beyond the official market. At the parallel market, commonly referred to as the black market, the naira appreciated by N18 to close the week at N1,452 per dollar on Friday. This represents a 1.23 percent gain from the N1,470 level observed earlier in the week.
The narrowing gap between official and parallel market rates continues to signal reduced arbitrage opportunities and easing speculative pressure on the currency. This convergence indicates a more unified and stable foreign exchange environment across different market segments.
External Reserves and Foreign Exchange Reforms Drive Stability
Nigeria's growing external reserves remain a crucial support factor for the naira. According to the Central Bank of Nigeria, gross external reserves climbed to $46.17 billion as of January 29, 2026, strengthening the central bank's ability to defend the naira and manage volatility effectively.
A report by Quest Merchant Bank highlighted that Nigeria's foreign exchange market entered a more stable phase in 2025, driven by structural reforms, improved transparency, and tighter domestic financial conditions. Key initiatives such as the settlement of legacy foreign exchange obligations and the launch of the Electronic Foreign Exchange Matching System have enhanced price discovery and market depth.
By 2025, price convergence across foreign exchange market segments had largely been restored, significantly reducing the wide disparities witnessed after foreign exchange liberalization in mid-2023.
Capital Inflows and Global Tailwinds Boost Naira Performance
Improved market confidence has translated into stronger foreign exchange inflows. Data from FMDQ indicates that average monthly foreign exchange inflows rose to $3.9 billion in 2025, up from $2.6 billion in 2024, largely driven by foreign portfolio investors attracted by high domestic yields.
Diaspora remittances, averaging around $5 billion per quarter, alongside oil-related inflows, have also provided steady foreign exchange support. Meanwhile, global conditions have played a role, as US Federal Reserve rate cuts in 2025 improved risk appetite and redirected capital flows toward higher-yielding emerging markets like Nigeria.
Outlook and Expectations for 2026
Looking ahead, Quest Merchant Bank anticipates exchange rate conditions to remain broadly stable in 2026, though not without intermittent pressure. Oil will continue to dominate foreign exchange earnings, accounting for nearly 88 percent of merchandise inflows, leaving the naira exposed to global oil price fluctuations.
Nevertheless, analysts believe sustained portfolio inflows, steady remittances, and continued policy discipline should help cushion the currency, keeping the naira on firmer ground despite external uncertainties. The Central Bank of Nigeria's proactive measures and market interventions are expected to maintain this positive trajectory throughout the year.
