The Naira has lost over N100 against the U.S. dollar in the official foreign exchange window, despite slower inflation in August.
According to the Nigerian Autonomous Foreign Exchange Market (NAFEM), the Naira was sold at N1,656 for $1, more than the N1,546 for $1 rate recorded on Monday.
However, on the black market, the Naira improved by N5, trading at N1,660 for $1 compared to N1,665 for $1 before.
This is the second month in a row where overall inflation has gone down, mainly because food prices are lower during the harvest season.
The Nigerian Bureau of Statistics (NBS) reported that the overall inflation rate in August was 32.15%, down from 33.40% in July. Food inflation also slowed to 37.52% from 39.53% in July 2024.
U.S. Dollar Index Gains Strength Before Federal Reserve Meeting
On Tuesday, the U.S. dollar gained value against most currencies, including the Naira, after higher-than-expected U.S. retail sales data came out. This news made people think the Federal Reserve might not raise interest rates as much as before.
The U.S. Dollar Index, which measures the dollar against six other currencies, went up a bit, recovering from earlier lows this year. Some experts think the Federal Reserve might cut interest rates by 50 basis points, but most expect just a 25 basis point cut.
The U.S. job market is getting stronger, which means that the Federal Reserve might relax monetary policy to help the economy grow. However, this optimism suggests the Fed might still increase interest rates, but more slowly.
The U.S. Commerce Department reported a small 0.1% rise in retail sales in August, making people hopeful that the economy is stable.
People are now waiting for the Federal Reserve’s decision on interest rates, expected to be announced after their meeting later today. The last time the Fed cut rates was during the COVID-19 pandemic in March 2020.
Even though Nigeria is looking forward to foreign investments later this year, it’s unlikely that the Federal Reserve will make big rate cuts given the current market conditions.
The dollar index, which measures the dollar against major currencies like the yen and euro, rose by 0.199% to 100.90 on Tuesday.
Forecasts using Fed funds futures now show a 63% chance of a 50 basis points cut, up from 30% a week ago. The chances of a 25 basis point cut are at 37%. These percentages changed after new reports spurred talks of possible aggressive easing measures.
Other data released on Wednesday suggest that it may be tough for the Federal Reserve to make big rate cuts. U.S. business inventories rose by 0.3% in July, and factory production increased in August.
Current market conditions show that some rate cuts are already expected over the next few months. However, some experts think the market might be expecting these cuts too soon.