Despite rising confidence that the US central bank was done hiking interest rates, the naira remained subdued throughout the mid-week trading session on the peer-to-peer market and felt weaker at the black/official market. This resulted in the dollar falling to a three-month low.
According to official statistics from FMDQ, the value of the Naira decreased on Tuesday, trading at N881.88/$1, down from N814.60/$1 on Monday.
Additionally, the Naira’s value on the black market dropped from N1,115/$1 on Monday to N1160/$1 on Tuesday.
Short sellers of the naira continue to hold their positions despite Mr. Yemi Cardoso’s most recent announcement that the country’s apex bank will be implementing new policies and procedures to ensure exchange rate stability. “Clear, transparent, and harmonized rules governing market operations are essential to ensure the proper functioning of domestic and foreign currency markets,” he stated. Prior to the implementation of any new requirements, banks and FX market operators will be consulted extensively during the development of new foreign exchange guidelines and legislation.” The CBN chief added.
Consequently, after plunging to three-month lows at the beginning of the week, the dollar index and dollar index futures saw a slight decline during the London trading session, extending overnight losses.
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Growing bets that the Fed will stop raising interest rates and will probably start cutting them in 2024 destroyed the value of the greenback.
The U.S. Fed maintained its benchmark interest rate at a 22-year high of 5.25% to 5.5% since July, following 11 consecutive rate increases after March 2022.
At its meeting in December, the Fed is most likely to maintain its current rate of interest, and experts anticipate that the world’s largest economy growth would support continued progress on inflation.
Consumer spending is declining along with business activity and labour demand, according to recent data.
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Chicago Fed President Austan Goolsbee’s most recent comments, which expressed concerns about maintaining rates too high for too long, further supported the dovish Fed expectations.
However, to determine when the Fed Reserve might start easing policy, financial markets are currently waiting for more economic signals.
In addition to the PCE data, the U.S. this week also marks the release of the November Purchasing Managers Index (PMI) data and the third-quarter GDP revision.
Any indications that the U. S. is probably going to give the Fed more leeway to maintain higher rates longer
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However, the opposite might occur if data indicates a quicker-than-anticipated cooling of the economy.
The US government debt’s 10-year yield, which is inversely correlated with price, decreased by 0.04% to 4.35% on Tuesday.
Such a decline brings yields back to a level last observed prior to the Fed meeting in the third quarter when concerns that interest rates would stay higher for an extended period caused a global bond market meltdown.
The two-year yield dropped to 4.75% its lowest level since August 10. U.S. yields are very sensitive to interest rate expectations.
With the dollar index down 3.6% since the beginning of November, it is currently headed for its worst monthly performance in a year.
