The local Nigerian currency, known as the Naira, went over the N1,160 mark against the US dollar last week, even though the dollar was not as strong.
In big cities in Nigeria, the Naira was worth as low as N1,670 when traded informally on the black market.
This change happened because many rich Nigerians travel or pay for their children’s school fees abroad during this time of year.
The Naira got stronger by 4.8% on Wednesday after Nigeria’s government raised $900 million through a special bond. But later, the Naira lost this gain because there were not enough dollars available.
Last year, President Bola Tinubu removed rules that made the Naira worth more than it really was to attract foreign investors.
But since then, the Naira has lost more than two-thirds of its value compared to the dollar. Businesses in Nigeria believe the Naira will get even weaker this year but might get stronger next year, according to a survey by the Central Bank of Nigeria (CBN).
Experts from top financial companies like Renaissance Capital, Goldman Sachs, and Financial Derivatives Company thought the Naira would be stronger at N1,000 or less, but that has not happened yet.
U.S. dollar index drops lower at Friday’s trading session
The US Dollar Index, which shows how strong the dollar is compared to other currencies, went down on Friday. This happened because people were thinking about the week’s inflation data. By the end of the week, more people thought that the Federal Reserve might lower interest rates by 0.5% at their next meeting. This made the dollar weaker.
The charts and data for the Dollar Index also showed that it was losing strength. The Index dropped below its usual 20-day average line, showing that it was likely to keep going down.
News reports said that the Federal Reserve might announce a big interest rate cut of 0.5% next week. Because of this, the value of the US dollar fell to its lowest in almost nine months against the Japanese yen on Friday.
People’s expectations changed after a report that an old Federal Reserve official thought a big rate cut was a good idea. An interest rate cut of 0.5% is now being expected by about 51% of the futures market, which was only 15% at the start of Thursday. Traders also increased their predictions for rate cuts in 2024 from 1.07% to 1.17%.
The dollar got back some of its value after new information showed that people in the US felt more confident about the economy in September. The University of Michigan said its index of how people feel about the economy went up to 69.0 in September from 67.9 in August. Economists had thought it would be 68.5.
Economic data this week showed that the prices of things, not including food and energy, went up more than expected in August. This means people still think a smaller 0.25% rate cut might happen next week.
But on Friday, Bill Dudley, former head of the New York Federal Reserve, said there’s a strong reason for a bigger 0.5% rate cut. He argued that current rates are a lot higher than the neutral rate, which neither helps nor hurts the economy.