The Nigerian naira gained against the British Pound both on the official Nigerian Foreign Exchange Market (NFEM) and the parallel market against the backdrop of a sustained intervention.
The British pound exchanged at roughly N1,825//£1 (based on cross rates using CBN FX data and international currency markets) as the market opened this morning, an increase from the N1831/£1 recorded at the closing of Wednesday’s trading session on the official side of the NFEM.
The Sterling changed at around N1905/£1 at the parallel or black market, owing to sustained demand pressure for foreign currency from importers, travellers, and others. The Nigerian central bank’s aggressive fight to maintain the tightness of liquidity is paying off.
A huge chunk of Naira has been withdrawn from Nigerian banks with an MPR of 26.5 percent and a CRR of 45 percent.
The less the excess liquidity in the system, the less ammunition for parallel market buyers and institutional traders to hunt forex at the prevailing rates.
Markets continue to see efforts by the Nigerian apex bank to suck liquidity from the market so that market players do not have to hunt for dollars. This has, in the end, potentially helped to bolster other pools of dollar liquidity. Such dollar inflows might come as US dollar inflows into a portfolio, diaspora remittances and official dollar inflows by the central bank and the government into a bond portfolio as well.
Official and parallel market rates mirroring each other indicate that the era of speculation and wide divergence of the parallel market rate from the official one may be over.
NFEM rates hovered in the N1,370-N1,380/1$ levels, and the premium on the parallel market has narrowed. Through calibrated BDC auctions and an accretion of foreign reserves with firm inflows from oil sales and exports, the CBN has thus addressed what is usually the driving factor behind divergence in the parallel market: panic buying by individuals and entities in search of dollar funds.
Market participants expect that the currency in the coming weeks and months will hinge largely on how many foreign exchange dollars flow in as crude oil receipts, remittances by the diaspora, and portfolio inflows into Nigeria, and the scale of intervention from the Central Bank of Nigeria to improve liquidity on the foreign exchange market.
British pound holds high against Greenback
The British pound sterling attracts some bids to near 1.3300 against the greenback in the European session on Thursday. The British pound advances against the US dollar amid hints of fiscal discipline from the UK’s likely new PM, Andy Burnham, which calmed the markets.
- The US nonfarm payrolls data for June is in the spotlight. “I want to deliver a radical shake-up of Britain’s politics, returning power from Westminster to local people, fostering partnership over confrontation, over the next decade to kick-start ‘good’ economic growth,” Burnham had said in his Monday statement to launch his 10-year reform plan.
- Markets still weigh the UK’s political transformation following Burnham’s recent ascension.
- Markets see the continuation of trust in the UK for public debt as essential. Although Burnham’s statements about fiscal responsibility support the pound in the short-term, they expect signs in future budgets of fiscal policies to promote more public spending.
All eyes are on the US jobs data later in the day, which may offer clues on the US interest rate outlook. The US Nonfarm Payrolls (NFP) report is seen printing a rise of 110K jobs for June. The unemployment rate for the US economy is anticipated to hold steady at 4.3% in June.
Should there be any indication of resilience in the US labor market, the Greenback would likely rise to the upside and pose headwinds for the major pair. The US dollar index (DXY) is currently trading at about 101.20 in early trade on the European session on Thursday as the markets brace for the crucial US employment figures for June.
