The Naira lost more than N100 against the U.S. dollar at the official window, despite a slower headline inflation rate in August.
Data from the Nigerian Autonomous Foreign Exchange Market (NAFEM) highlighted that the local currency was sold at N1,656/$1, higher than the N1,546/$1 recorded on Monday.
However, in the parallel market, the Naira appreciated by N5, trading at N1,660/$1 compared to the previous rate of N1,665/$1.
This marks the second consecutive month of lower headline inflation, attributed to reduced food prices during the harvest season.
According to the Nigerian Bureau of Statistics (NBS), headline inflation for August was 32.15%, down from 33.40% in July. Food inflation also decelerated, reaching 37.52% compared to 39.53% in July 2024.
U.S. Dollar Index Gains Momentum Ahead of Fed Meeting
On Tuesday, the U.S. dollar appreciated against most currencies, including the Naira, as higher-than-expected U.S. retail sales data was released, raising the possibility of a less aggressive Federal Reserve.
The U.S. Dollar Index, which tracks the dollar against a basket of six currencies, showed a slight increase, recovering from earlier lows this year. While some market pricing suggests a 50-basis point rate cut, most analysts predict a more modest 25-basis point cut.
The U.S. labor market continues to strengthen, suggesting that further relaxation of monetary policy could support economic growth. However, this high optimism may indicate that the Federal Reserve might continue raising interest rates, albeit at a slower pace.
The U.S. Commerce Department reported a modest 0.1% rise in retail sales in August, fueling hopes that the economy has stabilized through much of the third quarter.
Investors are now awaiting the Federal Reserve’s decision on interest rates, expected at the conclusion of its policy meeting later today. The last time the Fed cut rates was in response to the COVID-19 pandemic in March 2020.
While Nigeria is expected to see foreign capital inflows later in the year, it is unlikely the Federal Reserve will make aggressive rate cuts, given the current market conditions.
The dollar index, which measures the dollar against major currencies like the yen and euro, increased by 0.199% to 100.90 on Tuesday.
Fed funds futures currently reflect a 63% chance of a 50-basis point rate cut, up from 30% a week ago, while the likelihood of a 25-basis point cut is at 37%. These probabilities have shifted after reports reignited discussions of potential aggressive easing measures.
Other U.S. economic data released on Wednesday suggest that the Federal Reserve may find it challenging to implement aggressive rate cuts. U.S. business inventories increased by 0.3% in July, and factory production rebounded in August.
Present fundamentals indicate that the market is already pricing in some rate cuts over the next several months, though some analysts warn that the market may be moving ahead of itself.
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