Stronger reserves, oil inflows and local demand for naira assets support currency despite lower policy rate…..
The naira has extended its recent gains against the British pound, with the currency trading at N1,767 to £1 as it maintains its strength following the Central Bank of Nigeria’s latest monetary policy adjustment.
The development comes after the Central Bank lowered the Monetary Policy Rate (MPR) to 23 percent, a move that would ordinarily reduce the interest-rate advantage of naira-denominated fixed-income assets for foreign investors.
Despite the policy shift, the naira has remained relatively stable, supported by improved foreign exchange liquidity and stronger demand for local currency assets.
The pound, which traded above N1,900 against the naira during the first quarter of the year, has since recorded a significant decline against the Nigerian currency.
Improved foreign exchange buffers have also strengthened the naira’s position, with the country’s reserves reportedly exceeding $55 billion. Continued inflows from the oil and gas sector have further supported market liquidity and reduced pressure from speculative activity.
At the domestic market, stronger liquidity and increased demand at Treasury bill and Open Market Operations (OMO) auctions have continued to support demand for naira-denominated assets, even with the reduction in the benchmark interest rate.
The British pound has also remained close to its weakest level against the US dollar since June 26, despite recovering some of the losses recorded in the previous session.
The GBP/USD pair moved towards the $1.32 level early Friday, although its near-term outlook remained under pressure after trading below 1.3200.
A sustained decline could expose the pound to a retest of the year-to-date low around 1.3140, while further support is seen around 1.3100 and 1.3000.
Any recovery, meanwhile, could face resistance below 1.3300. A sustained break above that level could open the way towards the 200-day Simple Moving Average, currently around 1.3448.
The US dollar has maintained a firm position and was on course for a third consecutive weekly gain, with investors awaiting the latest US jobs data for indications of the Federal Reserve’s next policy direction.
The Nonfarm Payrolls (NFP) report is expected to provide fresh clues about the strength of the US labour market and the outlook for US interest rates, particularly as expectations of an October rate increase have weakened.
The US Dollar Index, which tracks the greenback against six major currencies, remained close to a one-and-a-half-year high. Concerns over inflation, partly linked to oil prices, have helped keep US yields elevated.
Geopolitical tensions, including developments involving the United States and Iran, have also reinforced demand for the dollar as a safe-haven currency.
Pressure on the pound has also been linked to rising UK borrowing costs and growing concerns over the country’s fiscal outlook.
Yields on 30-year UK government bonds, known as gilts, climbed above 6 percent for the first time since 1998, ahead of the Autumn Budget scheduled for October 28.
Meanwhile, the US 10-year Treasury yield approached 5.25 percent before pulling back from its multi-year highs on Friday. Despite the retreat, yields remained around levels last seen in 2002 amid continued safe-haven demand and concerns over France’s fiscal and political stability.
European bond markets also remained volatile, with rising French borrowing costs attracting attention. France’s 10-year OAT yield moved above 4.9 percent, its highest level since July 2002 and its sharpest quarterly increase in almost four decades.
The rise followed a government proposal aimed at reducing the country’s budget deficit, although France’s fiscal watchdog has warned that the economic projections underpinning the plan may be overly optimistic.
Despite the pressures facing sterling, downside risks remain tempered by cautious market positioning ahead of key economic data and policy developments.
