The Naira demonstrates resilience as the dollar reaches a two-year low in comparison to the British Pound. The Naira appreciated against the US dollar during the trading session on Friday.

The safe-haven currency saw notable declines against the British pound sterling, which surged to its highest point in over two years following comments from Federal Reserve Chair Jerome Powell regarding the expected interest rate cut in September.

According to FMDQ data, the local currency strengthened against the dollar, rising to N1570.14/$ from N1586.1/$ on Thursday, marking a N16 gain against the US dollar in Nigeria's foreign exchange market.

In the parallel market, the naira also gained value, moving from N1620/$ to N1615/$ on Friday. The Central Bank of Nigeria (CBN) has stepped up its initiatives this month to mitigate the fluctuations in the naira's exchange rate, which has contributed to its gradual appreciation against the dollar, coinciding with the dollar index reaching new lows this year due to a more dovish stance from the Fed.

The Nigerian currency began its upward trend after hitting a low of N1,912/$ in late February, dipped below N1,000/$ in April, and is currently around N1,585/$.

A recent survey by the CBN indicates that Nigerian businesses anticipate further weakening of the naira before it potentially strengthens in late 2024 or early 2025.

Despite the CBN's significant interventions in the forex market, this outlook remains pessimistic.

Nevertheless, a majority of Nigerian businesses express optimism despite their concerns regarding the naira's immediate future. Over 1,600 businesses participated in the CBN’s Business Expectations Survey, revealing that respondents expect the naira to weaken in July and August, as well as over the next three months.

U.S. Dollar Declines in Value Compared to Key Currencies

The euro climbed to a 13-month peak as the dollar weakened, with the US currency dropping to a 17-day low against the yen. In his keynote address at the Kansas City Fed’s annual economic conference in Jackson Hole, Wyoming, Powell emphasized that “the time has come for policy to adjust.” He acknowledged a reduction in upside inflation risks but noted an increase in downside risks to employment.

Powell remarked, “We do not seek or welcome further cooling in labor market conditions. As we approach price stability, we will make every effort to sustain a strong labor market. There is reason to believe that with appropriate easing of policy constraints, the economy can return to 2 percent inflation alongside a robust labor market.”

Market participants speculated that the Fed might lower interest rates by a quarter percentage point in September. Following Powell’s comments, the likelihood of such a cut rose to 65 percent for the September 17–18 meeting. Additionally, the chances of a more significant 50-basis point reduction increased from just over 25 percent to approximately one in three.

Consequently, the dollar index, which gauges the strength of the US dollar against a basket of six currencies, experienced a notable decline. The index was slightly stronger prior to Powell’s statements but fell by 0.81 percent by late Thursday, settling at 100.64 index points.

Austan Goolsbee, President of the Federal Reserve Bank of Chicago, later indicated on Friday that while he is not ready to advocate for a central bank rate cut, he believes monetary policy remains excessively tight and misaligned with the current economic conditions.

Powell’s comments regarding the dollar’s inverse relationship with signs of strength in the UK economy contributed to the pound reaching a two-year high against the US dollar.

By late evening, the pound had appreciated by 0.94 percent to $1.3211, surpassing the 2023 high of $1.3144 and achieving $1.32295, its highest level since late March 2022.

Encouraging indicators in the wider UK economy were bolstered by an August survey revealing that British consumer confidence remained at its highest level in nearly three years.

The euro appreciated by 0.75 percent, closing at $1.1195, after peaking at $1.12015 on Friday afternoon, marking its highest value since July 20, 2023.

This August saw the dollar/yen reach a low point. By the end of the trading session, the yen had declined by 1.36 percent to 144 points. The earlier statement from BOJ Governor Kazuo Ueda on Friday, indicating a potential interest rate increase if inflation persists on its current path and consistently meets the bank's 2 percent target, provided ongoing support for the yen.