Strong dollar turns into a nightmare for naira, U.S Treasury yields hit a 16-year high

King Dollar creates a new headache for Mr. Yemi Cardoso, the new chief of the CBN, as the Nigerian foreign exchange market becomes more vulnerable despite the CBN effort to stabilize the naira.

The US dollar, as measured by the DXY index, jumped on Monday, surpassing 106.80 and reaching its highest level since November 2022 boosted by rising US Treasury yields, US 10- to 30-year bonds climbed to new cycle highs.

The U.S. Treasury yields rose to a 16-year high on Monday as the global bond wave continued to decline after a brief pause late last week.

The benchmark 10-year Treasury yield rose 0.13 percentage points to 4.70%, its highest since 2007, after better-than-expected manufacturing data, bolstered investor confidence.

Bond prices around the world have fallen sharply in recent weeks, amid a series of Treasury issuances by the US government and growing confidence among investors that central banks will need to keep interest rates high for a long time. Yields move inversely to prices.

The naira still trades above N1,000 against the dollar due to the black market, which has caused an uptick in the price of consumer goods traded in foreign currencies, as Nigeria is essentially an imported goods-based economy.

Traders in Nigeria’s parallel market highlighted that the apex bank has failed to intervene in recent weeks, leaving businesses and individuals to seek supplies on the black market. Nigeria remains chronically short of foreign currency.

Global investors are leaving frontier markets in record numbers and turning to the safe-haven greenback, with two emergency interest rate cuts this month by the Federal Reserve doing little to dampen their strength and increased the attractiveness of the safe haven currency

In addition, the dollar hit a new 11-month high on Tuesday, pushing the yen into a potential intervention zone after strong US economic data reinforced the view that the Federal Reserve will keep interest rates higher in the future. long time.

The euro and sterling also traded at new multi-month lows against the dollar, with the euro falling below January levels. U.S. Treasury yields also helped the dollar rise, rising after the release of upbeat data, as well as a last-minute deal that helped avert a government shutdown.

As a result, forex traders are optimistic about the greenback, with Federal Reserve Governor Michelle Bowman saying on Monday that she is ready to support further increases in the central bank’s key interest rate if available data suggest inflationary progress is delayed or stagnant.

Bowman expressed his concerns at a banking conference, saying current inflation levels are still too high.

Reiterating his views, Bowman reaffirmed that “further rate hikes” are needed to bring inflation back to the Fed’s 2% target. She pointed out the risk that high energy prices could potentially reverse recent progress made on inflation.

Bowman added, “This, along with my own expectation that progress on inflation is likely to be slow given the current level of monetary policy restraint, suggests that further policy tightening will be needed to bring inflation down in a sustainable and timely manner.”
These comments were made during her prepared remarks for a conference hosted by the Mississippi Bankers Association and Tennessee Bankers Association.