A potential U.K. exit from the European Union next week may have far-reaching implications for the $5.3 trillion-a-day currency market. Add to that list Japan’s currency strengthening to levels that spark speculation about central bank intervention to counter the move.
The yen surged to the strongest in almost two years against the dollar this week as investors sought refuge before the June 23 British referendum. The rally prompted Finance Minister Taro Aso to express concern and call for coordination with foreign counterparts to address what he described as disorderly exchange-rate moves.
“They would be able to intervene,” Alan Ruskin, New York-based head of Group-of-10 currency strategy at Deutsche Bank AG, the world’s fourth-largest currency trader, said in an interview on Bloomberg Television. “If the yen was moving through 100 against the dollar and there were some Brexit-related events, then I could certainly see the Bank of Japan saying ‘Look here guys, we’re subject to all these external forces.’”
The Bank of Japan refrained this week from adding to stimulus, even as policy makers seek to bolster economic growth, which would benefit from a weaker yen making exports more competitive. Japan’s currency has rallied more than 15 percent against the dollar this year on haven demand from global economic turmoil, with hedge-fund positioning reaching the most bullish in six years.
Japan’s currency rose 2.6 percent this week, reaching 103.55 per dollar, the strongest level since August 2014. It added 2.4 percent to 117.47 per euro.
The premium for one-month options to buy the yen versus the greenback, over the cost of contracts to sell, widened to about 3 percentage points on June 16, the most since 2010, according prices compiled by Bloomberg. The gap was at 2.8 on Friday.
Analysts at Standard Bank Group Ltd., Prudential Financial Inc., Royal Bank of Canada, Bank of Tokyo-Mitsubishi UFJ Ltd. and Toronto-Dominion Bank said they are on watch for yen intervention.
“The most likely catalyst for that would be a Brexit outcome, in my view, which would lead potentially to very high volatility in foreign-exchange markets,” said Shahab Jalinoos, global head of foreign-exchange strategy at Credit Suisse Group AG in New York.
Aso, who is also deputy prime minister, said Friday that he wants to take “firm action” in line with Group-of-Seven and G-20 agreements on avoiding unstable currency markets.
Yet there’s no indication from the G-7 that they’re open to joint intervention. The last time Japan sold yen to restrain gains was in 2011, in a multilateral intervention following the devastating earthquake and tsunami.
Again CBN Devalues Naira by N6 Ahead of World Bank’s $1.5bn Loan Request
The Central Bank of Nigeria (CBN) has once again devalued the Nigerian Naira by N6 to the United States Dollar, making it the third time the apex bank will adjust the Naira exchange rate this year.
The devaluation brings the CBN closer to actualising foreign exchange unification demanded by the International Monetary Fund (IMF) in April before the $3.4 billion loan was approved.
This same condition was enforced by the World Bank as a prerequisite for approval of $1.5 billion loan request submitted by the Federal Government. The loan the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, said she was positive it would be approved by the multilateral institution in the next meeting given that the Federal Government has met all the conditions for the said loan.
24 hours later, the apex bank devalued the Naira official rate by N6 from N379/US$ to N385/US$. While the International Money Transfer Service Operators (IMTOs), all authorised dealers, bureau de change operators and service providers were asked to add N6 across all rates.
The rate for IMTOs against the US dollar has now moved from N382 to N388. Meaning banks will now sell dollar to the CBN at N389, up from the previous N383 to us dollar.
Again, the Central Bank sale of dollar to the bureau de change operators was pegged at N390 to dollar, against the old N384 to US dollar.
The apex bank, therefore, directed the BDCs to sell at not more than N392 per dollar to end-users. The old rate was N386 to a US dollar.
The CBN circlar reads in part, “Weekly Exchange Rate For Disbursement of Proceeds of International Money Transfer Service Operators’ pegged IMTOs sale of dollar to banks at N388 to dollar; banks sale of dollar to CBN at N389 to dollar and CBN sale of dollar to BDCs at N390 to dollar. The BDCs are now expected to sale to end-users at not more than N392 to dollar and each BDC is entitled to buy $10,000 weekly”.
More Problem for CBN as Naira Approaches N500/US$ at the Black Market
Naira plunged against the United States Dollar to a record low of N495 at the black market on Thursday despite the Central Bank of Nigeria saying it has enough financial means to meet forex demands.
The Naira declined by N12 from N483 it exchanged on Monday amid persistent scarcity and high demands by importers and businesses looking to offset COVID-19 losses with the usual December high demand sales.
Godwin Emefiele, the Governor of the Central Bank of Nigeria (CBN), on Tuesday blamed the wide foreign exchange rate at the black market on speculators and hoarders looking for personal gain at the expense of the nation.
He went on to caution experts using black market rates to analyse the local currency performance to stop and claimed that section of the forex only accounts for 5 percent of the nation’s total foreign exchange transactions.
While that might be true, it is also true that majority of manufacturers and businesses have turned to the black market for their forex needs in recent months, especially after it became obvious that the apex bank does not have enough liquidity to service the economy.
The nation’s foreign reserves has been battered by the weak oil prices and the continuous production cut by OPEC and allies to artificially support low prices. Nigeria’s foreign reserves is presently hovering between $35 billion and $36 billion after plunging from $45 billion attained in June 2019, according to the latest data from the Central Bank of Nigeria.
Against the British Pound, the Nigerian Naira depreciated by N15 to N635 from N620 it exchanged on Monday. Another indication of chronic forex scarcity as the local currency also plunged to N580 against the European common currency, the Euro.
The wide forex is expected to further weigh on the nation’s inflation rate and consumer spending this December.
On Tuesday, the apex bank left the interest rate unchanged at 11.5 percent and attributed the rising inflation rate to structural policies, the recent #EndSARS protest and a surging fuel price.
Naira Gains N1 to N483 Against US Dollar as CBN Warned Speculators of Impending Doom
The Central Bank of Nigeria on Tuesday warned speculators and hoarders of the United States Dollar against creating artificial forex scarcity for personal gain.
Godwin Emefiele, the Governor of the Central Bank of Nigeria, said black market forex rates does not reflect the economic reality of the Nigerian Naira as that section of the forex is tainted with bribes and individuals looking to profit at the expense of the nation.
“We do not agree that the determining factor for our currency should be based on a market that is tainted, where people go to offer bribes,” he stated during a virtual monetary policy committee briefing in Abuja.
The Nigerian Naira gained N1 against the United States dollar to trade at N483 at the parallel market also known as the black market, up from N484 it traded on Monday.
Emefiele said “The black market is illegal where people do not provide documentation to support transactions. It is unfortunate and unfair for analysts to say Nigeria’s exchange rate is at 480 per dollar.”
The Association of Bureau De Change Operators of Nigeria (ABCON) agreed with the central bank, saying speculators and currency hoarders are responsible for the wide forex rates. The association warned that speculators are going to lose money given that the apex bank has foreign reserves of $36 billion to support the local currency and meet forex demands.
The apex bank left the interest rate unchanged at 11.5 percent to further stimulate growth in the real sector and speed up the recovery process with cheaper loans. Other ratios were left unchanged as well.
Speaking on the rising inflation rate, Godwin Emefiele attributed the 14.23 percent increase in consumer prices to the rising pump price, the recent #EndSARS protest and structural policies.
Therefore, it looks like the apex bank will damn rising inflation for the first time to focus on economic productivity, new job creation and general growth.
The Naira CBN official rate remains $379 to a United States Dollar while it exchanged at N385 on the Investors and Exporters Forex Window on Tuesday.
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