Strong US dollar hurts naira despite efforts unifying exchange rate

The Nigerian Naira has been in the spotlight for the past few days after reports of plans to unify multiple exchange rate systems, yet the rampaging dollar has kept the naira at suppressed levels.

In his inaugural address minutes after becoming the 16th president, Mr Tinubu said “monetary policy needs a sweeping cleanup” and that the central bank needs to work towards a single exchange rate. By doing this, money is diverted from arbitrage and invested wisely in the businesses, factories, and employment that support the actual economy.

Howbeit the naira faces strong pressures from the greenback as Fed officials increasingly predict another U.S. interest rate hike in June, and the dollar has strengthened across the board this week as Congress finally set the tone for a two-year debt ceiling hike.

Cleveland Fed President Loretta Mester told the Financial Times on Wednesday that she sees no “compelling reason” for the Cleveland Fed to suspend its rate hike campaign next month, with futures markets slipping another quarter of a point. There is a 65% chance of an increase. two weeks.

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The market currently sees a roughly 38% chance that the Fed will raise rates by 25 basis points at its next meeting, compared with about 67% a day earlier, according to the CME-FedWatch tool. The latest US economic data suggests another rate hike soon, but the FOMC believes it has already completed the current tightening cycle.

Fed officials, including the incoming vice chairman, have warned that a rate hike in June “won’t happen”, giving the Fed time to assess the impact of the tightening cycle so far on still-strong inflation data.

Consequently, the U.S. House of Representatives voted to approve the suspension of the debt ceiling as a boost to the dollar, as the dollar fell from a two-month high on Thursday as investors refrained from believing the Federal Reserve would raise interest rates this month. became.

The split U.S. House of Representatives on Wednesday passed legislation to suspend the $31.4 trillion debt ceiling, but the focus is on what happens in the Democratic-led Senate just days before the federal government raises the ceiling. Payment Bills.

The dollar did little to react to the news initially, but rose as the Asian trading day progressed, recovering some of its early trading losses.

The dollar index rose 0.13 per cent to 104.28 but retreated from a two-month high in the previous session as traders downplayed expectations of another Federal Reserve rate hike this month.

Oil prices fell on Wednesday, weighed down by a stronger dollar and weaker data from China, the largest oil importer, fueling demand concerns.

This is bad news for Africa’s largest economy, as Nigeria is a major oil producer, exporting crude oil and importing refined products.

Expectations that the US Federal Reserve (Fed) will raise interest rates again in June have pushed the dollar higher, adding weight to crude oil futures denominated in the US currency.

Traders are eyeing the June 4th meeting of OPEC+, a group of oil exporters and allies including Russia. HSBC, Goldman Sachs, and analysts do not expect OPEC+ to announce further cuts at its meeting, as mixed signals of further cuts by major oil producers have caused oil price volatility.