The naira strengthened further against the United States dollar at Nigeria’s official foreign exchange market on Wednesday, edging closer to the critical N1,350/$ threshold.
The local currency appreciated by nearly N10 against the dollar, supported by stronger demand for the naira from both domestic and foreign market participants, alongside sustained interventions by the Central Bank of Nigeria (CBN). The naira closed at N1,357/$.
This marks a notable improvement from the N1,375.5/$ recorded at the beginning of May, representing an appreciation of about 1.2 per cent within one week.
Trading activity in the official foreign exchange market has also increased, signalling more active price discovery as companies and traders respond to daily market movements rather than merely hedging against potential currency depreciation.
Analysts say the foreign exchange market has become increasingly sensitive to policy signals and liquidity conditions, reducing the influence of long-term speculative trading.
Despite the current rally, projections indicate that the naira could face mild depreciation in the second half of 2026 as pre-election spending ahead of the 2027 general elections injects more liquidity into the economy.
The CBN’s hawkish monetary stance, characterised by elevated interest rates aimed at curbing inflation, has continued to attract investors to naira-denominated assets such as Treasury Bills. This has helped strengthen the local currency.
However, more than N10.53 trillion in liquidity from maturing Treasury Bills and Open Market Operations (OMO) instruments is expected to enter the financial system in May 2026, potentially increasing pressure on the naira if excess funds are not effectively sterilised by the apex bank.
The naira has, however, found some relief from global monetary conditions, particularly the US Federal Reserve’s decision to maintain interest rates at about 3.75 per cent, which has limited capital flight from frontier markets, including Nigeria.
US dollar weakens against major currencies
Meanwhile, the US Dollar Index (DXY), which tracks the greenback against six major currencies, remained steady around 98 points during the London trading session after shedding nearly 50 basis points in the previous session.
Weak US economic indicators, including softer manufacturing output and retail sales data, have dampened expectations of aggressive monetary tightening by the Federal Reserve.
At the same time, improving growth prospects in Europe and Asia have strengthened rival currencies, adding further pressure on the US dollar.
Market participants are also watching closely for signals from the Federal Reserve regarding the future direction of interest rates. Analysts say any dovish remarks could weaken the dollar further, while hawkish comments may provide support for the currency.
Optimism over a possible US-Iran agreement also weighed on the greenback after oil prices declined sharply, easing inflation concerns and reducing expectations of prolonged aggressive rate hikes by the Fed.
However, Chicago Federal Reserve President Austan Goolsbee warned that inflationary pressures have intensified since the conflict began, rather than moderating toward the Fed’s two per cent target.
Iran said a US proposal aimed at easing tensions remains under consideration amid reports that both sides may be moving closer to an agreement. The proposal reportedly includes measures to ease US sanctions and gradually reopen the Strait of Hormuz.
Investors are now awaiting the US April jobs report scheduled for Friday. Economists forecast the creation of about 60,000 new jobs, while the unemployment rate is expected to remain unchanged at 4.3 per cent.
Analysts note that stronger-than-expected job growth and sustained wage pressures could provide fresh support for the US dollar.
Attention is also on the ADP private sector employment report expected later Wednesday, which could offer an early indication of labour market strength in the United States.
Currency traders will be monitoring whether the US economy remains resilient enough to delay expectations of interest rate cuts or whether weakness in the services sector is beginning to spread to the labour market.
