The British Pound is currently trading around N1,800/£ against the naira in the official market, the strongest level for the naira since late February.
The Nigerian currency showed strength against the British Pound in the past few weeks, largely remaining within the broad N1800-1850/£ trading zone.
Latest price action showed recent sessions are confined to a narrower, range-bound consolidation as the volatility observed in previous weeks diminishes, giving way to two-way foreign exchange flows.
Initial resistance levels are situated at N1,840/£, with a significant resistance ceiling between N1,880/£ and N1,900/£. A break above N1,900/£ is necessary for the medium-term outlook to favor renewed strength in sterling.
Supportive downside support is observed around the N1,780/£ level, reinforced by a technical support floor at approximately N1,750/£. Protecting these levels is likely to prevent the price from declining to yearly lows.
The Central Bank of Nigeria (CBN) continues its efforts to foster greater transparency in price discovery, market-determined pricing, and liquidity injections within official foreign exchange channels.
Effective management of backlog demands and foreign exchange supply has helped contain excess demand in the parallel market and stabilize the naira in the country’s official spot market.
The current environment, characterized by high interest rates driven by both the CBN (which has aggressively increased the Monetary Policy Rate to control inflation domestically) and the Bank of England (BoE), creates a tug-of-war situation.
Consequently, the Nigerian apex bank’s measures to limit naira liquidity help mitigate speculative activities and hoarding in the forex market. Meanwhile, the UK’s economic performance, inflation data, and the BoE’s policy outlook influence sterling’s strength relative to emerging-market currencies.
The near-term outlook for the pair suggests further range-bound consolidation in the coming weeks. The CBN’s initiatives to deepen market liquidity and bolster national foreign reserves aim to prevent rapid spikes in key currency pairs.
Consequently, the pair is expected to remain within a range of approximately N1,750/£ to N1,860/£, barring significant macroeconomic shocks related to crude oil revenue or actions by the Bank of England.
British pound holds the $1.35 line against the greenback
The UK Pound Sterling traded in bullish territory near $1.35 in initial European trading on Thursday, amidst a somewhat weaker US Dollar.
Market participants are now awaiting Bank of England Governor Bailey’s speech and the upcoming US jobs report scheduled for Friday.
Federal Reserve Chair Kevin Warsh recently delivered a surprisingly dovish stance at the Jackson Hole symposium, increasing the likelihood of a rate hike in September.
He reaffirmed the Fed’s commitment to returning inflation to the 2% target and indicated that rates could rise beyond this level.
- Analysts at UOB noted that “the emphasis on inflation risks, along with Warsh’s explicit commitment to price stability and his reluctance to pre-commit to future policy actions, enhances the risks of policy tightening this year, although it may also be a case of rhetoric without corresponding action.”
On the UK front, BoE policymaker Catherine Mann indicated signs of tentative economic growth since the last monetary policy meeting.
She highlighted that the labor market has stabilized, and that inflation has been somewhat higher than anticipated.
Financial markets on Tuesday had fully priced in a Bank of England rate increase by the end of 2023, with approximately a 15% probability assigned to a rate hike during the September policy meeting, according to Reuters.
Sterling’s sentiment remains steady, with limited political developments in the UK. Experts observed that “the domestic political environment remains relatively quiet; political developments offer little influence to market participants seeking domestic drivers.
Markets emphasize the importance of sentiment, particularly politically related sentiment, in driving the Pound’s recent appreciation following Prime Minister Burnham’s appointment in late June. However, the absence of new policy signals provides few catalysts for further trading activity.
