The naira weakened slightly against the British pound on Wednesday, closing at about N1,855/£ on the Nigerian Foreign Exchange Market (NFEM), as the pound sterling continued to strengthen in global currency markets.
The latest movement represents a marginal depreciation from the previous session’s rate of N1,849/£, with the official exchange rate remaining within its recent trading band of N1,825/£ to N1,890/£.
The local currency, however, remained relatively stable against the US dollar, trading between N1,375/$ and N1,380/$ in the official market, supported by the Central Bank of Nigeria’s (CBN) managed float regime and continued foreign exchange interventions aimed at reducing market volatility.
Analysts noted that Nigeria’s external reserves, which have climbed above $51 billion, continue to provide support for the naira, while the International Monetary Fund (IMF) recently assessed the currency as being undervalued by about 25.6 per cent against the US dollar.
Despite these positives, market observers warned that the decision by Dangote Petroleum Refinery to sell petroleum products to local marketers in US dollars, following challenges with its naira-for-crude arrangement, could increase demand for the greenback and exert pressure on the local currency over time.
The pound’s recent strength has been underpinned by expectations that the Bank of England (BoE) will maintain a relatively tight monetary policy, with inflation remaining above 3 per cent and markets pricing in the possibility of additional interest rate hikes later this year.
Sterling also drew support from a weaker US dollar after softer-than-expected US inflation data, as well as concerns that rising geopolitical tensions in the Middle East could push up energy prices and sustain inflationary pressures globally.
