In both the official and black markets, the naira depreciates for the second day in a row.
Banks are now selling a dollar for N1,234 instead of N1,169 as they did on Friday.
In street trading, the value of the currency was N1,270 per US dollar, down from N1,230 on Friday. The sharp increase in the value of the US dollar accompanied the naira’s decline.
The dollar has strengthened over the previous week, in large part due to the impressive health of the US economy.
Officials from the Federal Reserve have stated that they may maintain rates at a 23-year high while they wait for additional proof that inflation is approaching their 2 percent objective due to the economy’s resilience.
The fact that March’s inflation data were higher than anticipated for the third consecutive month, however, suggests that the inflation’s decreasing trend may have paused. Lately, rising gas prices and persistently high housing expenses have increased total inflation.
Nigeria and other developing nations face capital reversals if the Federal Reserve delays reducing interest rates. Because of the CBN’s changes, Nigeria has benefited from some capital inflows during the past two months. The strengthening of the dollar indicates a risk-off attitude among investors as they evaluate the effects of a postponed rate decrease and seek safety in havens.
There has also been a flight to the US dollar due to rising tensions in the Middle East as a result of Iran’s attack on Israel. The situation led to a 3.1% decline in the benchmark Brent Crude price early last week, from $90 per barrel to $87.6 per barrel.
The senior economist at investment bank Cardinal Stone, Olaolu Boboye, stated that the recent geopolitical unrest in the Middle East is what is causing the dollar to rise. He claimed that because of the turmoil in the Middle East, foreign investors are fleeing to safe havens.
The jobs report, which is anticipated to show a strong number on May 3rd, is the next major data point that analysts anticipate.
The International Monetary Fund estimates that after a year, a 10% increase in the value of the dollar on the currency market would reduce the real Gross Domestic Product (GDP) of emerging nations by 1.9%, with the effects extending for more than two years.
If naira depreciates further, more interventions from the apex bank will be needed.
