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Goldman Sachs Calls Dollar Bottom as Economic Concern Subsides

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Goldman Sachs Group Inc. says the dollar slump is over.

The greenback has rallied almost 1 percent from a one-year low reached last week, even after April payrolls data showed the weakest job growth in seven months. Goldman Sachs says the rally is a sign that market expectations for growth and Federal Reserve interest-rate increases have fallen too far, too fast, positioning the currency for a rebound. Strategists at Societe Generale SA and Brown Brothers Harriman & Co. are less bullish, saying a broader dollar recovery will depend on further economic data.

“We remain dollar bullish and think the trajectory is higher from here,” Robin Brooks, Goldman Sachs’s New York-based chief currency strategist, said in an interview with Bloomberg Radio. “The reaction on Friday to a meaningfully weaker-than-expected payrolls was telling: We had a disappointing jobs number and the dollar actually bounced.”

Brooks estimates that the dollar will advance 15 percent during the next two years as U.S. monetary policy normalizes, he said in a report Tuesday. This isn’t the first time Goldman Sachs has reiterated its dollar-bullish stance in recent months, a view that hasn’t always panned out. The bank closed a dollar position against a equally weighted basket of euro and yen in February, one of its top trade recommendations for 2016, with a potential loss of about 5 percent.

The greenback saw its biggest advance in six months last week, paring its 2016 decline to 4.1 percent. The dollar fell for a third straight month in April, the longest stretch since before it embarked on a 20 percent rally in July 2014, on speculation the Fed will take a slower path to raising rates as it factors in headwinds from slowing global economic growth.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, was little changed as of 11:52 a.m. in New York, after climbing 1.5 percent last week, the most since Nov. 6. The U.S. currency rose 0.8 percent to 109.17 yen, touching the highest since April 27.

Market Outlook

While Fed policy makers have recently talked up the potential for rate-hikes in the near term, reiterating that June’s FOMC meeting will be “live” and forecasting two potential rate increases this year, markets aren’t convinced.

Traders have already heavily discounted the likelihood of any Fed action before the fall, predicting just a 4 percent change of a rate hike next month — evidence, Goldman Sachs says, that markets are increasingly looking away from the Fed and to other central banks to set the dollar in motion.

“The key issue facing the foreign exchange market is whether the modicum of strength the U.S. dollar demonstrated last week is the beginning of a sustainable move,” Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman, wrote in a report. “It is possible that the market is again at a juncture in which the price action will drive the narrative rather than the other way around.”

Do you agree the dollar slump is over, even after disappointing employment report?

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Naira

Nigeria Hits Historic High as Currency in Circulation Surges to N3.69 Trillion

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Nigeria’s currency in circulation surged to a historic high of N3.69 trillion, according to data released by the Central Bank of Nigeria (CBN).

This figure represents an increase of N43.07 billion or 1.18 percent from the total of N3.65 trillion reported in January 2024 and a 13.64 percent year-on-year rise from N3.25 trillion reported in February 2023.

Currency in circulation encompasses the physical cash, including paper notes and coins, actively used in transactions between consumers and businesses within the country.

The latest statistics indicate a considerable uptick in the availability of cash within the Nigerian economy.

The surge in currency supply comes amidst lingering concerns over a potential cash crunch following the monetary policy adjustments by the CBN, particularly the aggressive tightening stance of the Monetary Policy Committee (MPC).

Analysts attribute this spike to various factors, including the fear factor stemming from the cash crunch experienced in 2023 and lingering uncertainties surrounding the administration of physical currency.

Despite the surge in currency in circulation, Nigeria’s economic growth remains sluggish, with projections indicating growth rates of around 2.9 percent to 3.1 percent for 2024.

Also, inflation remains a significant concern, with the headline inflation rate climbing to 31.70 percent in February 2024 from 29.9 percent reported in January 2024, according to data from the National Bureau of Statistics (NBS).

The CBN’s proactive approach to monetary policy, including a historic increase in the monetary policy rate (MPR) to 24.75 percent, underscores the central bank’s commitment to addressing economic challenges and fostering stability amidst persistent pressures.

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Naira

Nigerian Naira Surges to N1,350 per Dollar in Parallel Market

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The Nigerian Naira has appreciated to N1,350 per dollar in the parallel market, a significant gain from its previous rate of N1,430 per dollar just a day earlier.

Similarly, in the Nigerian Foreign Exchange Market (NAFEM), the naira strengthened to N1,382.95 per dollar, indicating an upward trend across key forex segments.

Data from FMDQ revealed that the indicative exchange rate for NAFEM fell to N1,382.95 per dollar from N1,408.04 per dollar on the previous day, representing a gain of N25.09 for the naira.

This surge in the naira’s value has widened the margin between the parallel market rate and NAFEM to N32.95 per dollar from N21.96 per dollar previously.

Analysts attribute this impressive surge to recent foreign exchange reforms implemented by the Central Bank of Nigeria (CBN).

These reforms, including the consolidation of exchange rate windows and liberalization of the FX market, have contributed to bolstering the naira’s strength against the dollar.

The CBN’s proactive measures aim to promote stability, transparency, and liquidity in the foreign exchange market, fostering confidence among investors and strengthening the national currency.

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CBN Governor Reveals $2.4 Billion Forex Forwards Under Investigation

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Naira Exchange Rates - Investors King

Governor Yemi Cardoso of the Central Bank of Nigeria (CBN) disclosed that law enforcement agencies are currently investigating foreign exchange forwards valued at $2.4 billion.

This announcement came in the wake of the Monetary Policy Committee (MPC) meeting held in Abuja on Tuesday, March 26.

Governor Cardoso shed light on the meticulous forensic audit conducted on these transactions, which uncovered numerous discrepancies, rendering them ineligible for payment.

The CBN, while settling certain tranches of FX backlog, encountered transactions riddled with issues concerning their authenticity.

To address these concerns, Deloitte management consultants were enlisted to conduct a comprehensive forensic analysis spanning several months.

The audit revealed a multitude of irregularities, including allocations disbursed without corresponding requests, lack of proper documentation, and instances of outright illegality.

Cardoso emphasized the gravity of the situation, stating, “We refused to validate them because, apart from the fact that documentation was not satisfactory in many cases, they were outright illegal.”

He underscored the commitment of law enforcement agencies to investigate these transactions thoroughly.

Despite concerns about potential backlogs among stakeholders, Cardoso assured that the market remains open and transparent for addressing any outstanding contractual obligations.

The CBN has diligently verified and settled recognized backlogs of forward transactions.

This revelation comes at a critical juncture as Nigeria grapples with economic challenges, including inflationary pressures.

The MPC’s decision to raise the benchmark interest rate to 24.75 percent reflects efforts to stabilize prices and restore the purchasing power of the average Nigerian.

As investigations unfold and regulatory scrutiny intensifies, the CBN’s commitment to transparency and financial integrity will be closely monitored by stakeholders across the nation.

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