On Thursday, the local money didn’t change much against the US dollar. Even though the US Central Bank lowered its interest rates, the dollar stayed strong. This was because they also hinted they might raise the rates again in the future.
The naira, Nigeria’s currency, remained stable against the dollar, trading at N1,660 for $1. It was also steady against the British pound, trading at N2,220 for £1.
Looking at the bigger picture, the naira is still struggling even after the US cut its rates. The Central Bank of Nigeria (CBN) tried to help, but it wasn’t enough. One big problem is that Nigeria’s oil production, which brings in foreign money, is not doing well.
When we look at prices, we see that people who bet the naira will go down are in control. This is happening in the black market where the naira is trading around N1,600. Many people want to buy foreign money for things like travel, fuel, and school fees abroad, putting more pressure on the naira.
The US Dollar Index Went Up After US Central Bank Predictions
The value of the US dollar increased by about 40 basis points during Thursday’s trading. This happened even though the US Central Bank cut its rates.
The US Federal Reserve lowered its interest rates by 50 basis points to a range of 4.75% to 5.00%. This matched what many people expected and coincided with the dollar getting stronger.
Federal Reserve Chairman Jerome Powell said there’s now a balance between inflation risks and job market weakness. He hinted that they might cut the rates further because they trust inflation is going down. “Our labor market is strong, and we want to keep it that way,” he added.
So, they cut the interest rate range to 4.75% to 5.00%. This decision caused some confusion in the market and showed that the US is changing its money policies.
Some people, like Donald Trump and his supporters, say this was a political move. For Kamala Harris, who is running in the election, the timing just two months before the vote seemed convenient.
The Fed’s decision showed a change in its approach to money and caused some turmoil, leading to a drop in the US dollar’s value.
When we look at the technical details of the Dollar Index (DXY), things don’t look good. The indicators are still in a bearish (negative) zone. The 20-day Simple Moving Average (SMA) is going down, which means people are buying less.
The Relative Strength Index (RSI) is also going down and below 50, which indicates a negative trend. The Moving Average Convergence Divergence (MACD) is showing lower green bars, which supports the bearish trend.
But, Federal Reserve Chairman Powell said they don’t plan to return to the very low rates seen during the pandemic. Now, the “neutral rate” will be higher than before.
Even though traders think the rates will be cut by at least 125 basis points by the end of 2024, Powell’s words made people worry about rates being higher than expected in the near and long term.
The US dollar might keep falling as the Federal Reserve seems ready to cut rates again if needed. This shows they are ready to act aggressively if the economy needs it.
But Powell also said the big drop in rates could mean the end of the fight against inflation. And, even though there are worries about a recession, he believes the US economy is still strong. “Our cautious approach over the past year has been successful,” Powell said. “We are closer to our inflation goal, and we believe it will steadily rise to 2 percent.”