The local currency slumped against the haven currency in the official trading session of the month, while the dollar index showed some gains on Friday.
The naira settled at N1,598/$1 at the official window, according to data from the Nigerian Autonomous Foreign Exchange Market, slightly higher than the N1,593/$1 traded on Thursday.
The volume of dollars traded (turnover) in the market increased by 11 percent to $172.8 million from $155.52 million traded on Thursday.
At the black market, the domestic currency depreciated to N1,625 in the parallel market amid increased efforts by the apex bank to stabilize the country’s FX market.
This recent depreciation highlights the complexities of Nigeria’s foreign exchange market, where the supply of dollars is frequently insufficient to meet demand, especially during periods of high economic activity. Consequently, the margin between the parallel market and the NAFEM rate widened to N27 per dollar from N21 per dollar on Thursday.
U.S. Dollar Index Maintains Bullish Momentum
On the global market, the greenback rallied strongly as data revealed a major inflation indicator in line with projections, with income and personal spending both increasing. The PCE price index rose 2.5% in the 12 months ending in July, matching the gain from June. Additionally, consumer spending increased by 0.5% in June and by 0.3% in July.
Following the release of the inflation data, the dollar index—which measures its value relative to six important currency peers—rose to a 10-day high and was last up 0.3% at 101 index points. It increased by 1% for the week, putting it on track for its best weekly result since the beginning of April. These developments supported expectations that the Federal Reserve would lower interest rates by 25 basis points next month rather than 50 basis points.
Some market players had anticipated a larger cut for the following month, believing that the Fed needed to accelerate its easing program. According to LSEG calculations, rate futures on Friday indicated a 31% chance of a 50 basis-point rate cut next month, down from a 35% probability on Thursday.
The market had fully priced the Fed’s first easing in over four years, expected to occur in September. By the end of 2024, the markets have also factored in cuts of roughly 100 basis points. Following the release of the inflation data, the dollar gained 0.8% to 146.09 yen, marking its biggest daily gain in the previous two weeks. It increased 0.2% over the week, on track for its largest weekly increase since mid-June.
However, the U.S. dollar lost ground against the Japanese yen in August, declining by 2.6% for the second consecutive month. According to data released on Friday, the price index for personal consumption expenditures increased by 0.2% last month, as anticipated, following an unrevised 0.1% increase in June.