The dollar declined from a seven-week high as investors braced for the Federal Reserve policy decision this week and Goldman Sachs Asset Management said a rally that propelled the dollar to a seven-week high will fizzle.
The money manager said it expects the U.S. central bank to forgo an interest-rate increase this week, in line with the median forecast in a Bloomberg survey, even after a report Sept. 16 showing U.S. inflation rising faster than economists forecast drove the greenback higher. Hedge funds and other speculative investors trimmed bullish dollar positions last week as they awaited comments from policy makers about the path of interest rates.
Parent Goldman Sachs Group Inc. cut its forecasts for gains in the U.S. currency versus the yen, saying it is “not optimistic” about the outcome of the Bank of Japan’s policy meeting this week.
“Over the medium to longer term, we continue to expect U.S. dollar weakness versus G-10 and emerging-market currencies,” the asset-management firm said in a note to clients dated Sept. 16. “We expect no move in September but anticipate the Fed will signal that a rate hike is still possible this year, while the pace of tightening will be even more shallow and gradual than previous Fed projections.”
The dollar weakened 0.1 percent to $1.1166 per euro as of 8:48 a.m. New York time and fell 0.5 percent to 101.77 yen. The Bloomberg Dollar Spot Index fell 0.3 percent from Sept. 16, when it jumped 0.7 percent to close at its highest level since July 28.
Hedge funds and other large speculators cut net bullish positions on the dollar for the week ended Sept. 13, according to data from the Commodity Futures Trading Commission. Bets that the dollar would rise outnumbered bearish positions by 113,195 contracts, down from 119,066 in the previous period.
Fed Fund futures imply a one-in-five chance of Fed action Wednesday and a 55 percent chance by year-end.
Since boosting interest rates last December, Fed policy makers have refrained from a subsequent hike, with external factors from Brexit to concerns over global growth staying their hand. Later this year, the U.S. election might deter them, according to Neil Jones, head of hedge fund sales at Mizuho Bank Ltd. in London.
Polls show the presidential race is getting tighter, clouding the outlook for U.S. Policy beyond November’s vote. Citigroup Inc. reduced its forecast of the likelihood of a Hillary Clinton victory to 60 percent from 65 percent, with a 40 percent probability of a victory by Donald Trump, analysts led by Tina Fordham wrote in client note.
“Many still believe a December rate hike is on the cards, but some might be cautious because policy makers have told the market they were ready to raise rates this year but that has not happened,” said Mizuho’s Jones. “I see politics in the U.S. as a risk. It may deter the Fed from delivering a rate increase.”
The BOJ decides policy the same day as the Fed this week, with forecasts for action by analysts ranging widely. That is complicating the job of currency traders trying to position for the event. Japan became the epicenter of a global bond selloff this month, amid speculation the central bank will pull back from buying long-term bonds after Governor Haruhiko Kuroda ordered a comprehensive review of its easing program.
“The U.S. dollar is going to trade in a broad range, capped by Fed inaction on the one side, and the potential for heightened volatility on the other,” said Daniel Been, head of foreign exchange research at Australia & New Zealand Banking Group Ltd. in Sydney. “The BOJ and the potential for them to drive a larger global steepening is the bigger event.”
Goldman Sachs, the investment bank, is taking the view that Japan’s central bank “will continue to ease at upcoming meetings,” likely by further cuts to the deposit rate, but it won’t be enough to reverse the “adverse dynamic” created in January, with the introduction of a negative interest-rate policy. The Wall Street firm cut its three-month forecast for the dollar to 108 yen from 115 yen, and its 12-month prediction to 115 yen from 125 yen.
“Focus at the BOJ has shifted toward making the existing policy stance sustainable, as opposed to adding stimulus to meet the inflation target,” Goldman Sachs analysts led by Robin Brooks wrote in a note dated Sept. 18. “We are not optimistic.”
Naira Drops to N444 Against the United States Dollar at Official Forex Window
Efforts to halt plunging Nigerian Naira are yet to start crystalising despite a series of initiatives implemented to prop up the value of the embattled currency.
The local currency dropped to N444 per US Dollar at the forex spot market on Tuesday before paring losses to close at N415.10.
On Wednesday, the Naira opened at N414.44 against the United States Dollar at the official forex window managed by the FMDQ Group. Investors transacted $200.74 million during the trading hours of Tuesday.
Weak foreign exchange generation despite crude oil trading at $86 per barrel has impeded the Central Bank of Nigeria’s ability to service the economy with enough forex given the structure of the economy as an import-dependent nation.
Lack of forex liquidity has escalated the cost of goods and services in Africa’s largest economy, pushing Nigeria’s inflation rate to 16.63 percent year-on-year in September 2021 and new job creation to a record low.
The unemployment rate rose to 33.33 percent while household savings is presumed to be at an all-time low going by the NDIC. The Nigeria Deposit Insurance Corporation (NDIC) on Monday said over 99 percent of all the bank accounts in Nigeria have less than the N500,000 Maximum Insured Limit (MIL) of the corporation.
That statement further confirmed Nigeria’s economic challenges. The rising cost of importations and production due to various tariffs imposed on imported goods and the ongoing fight between herders and farmers across the country are some of the factors weighing on Nigeria’s economy and subsequent the nation’s currency, the Naira.
Producers, especially those that depend on imported goods, are now struggling to pass the increase in price to customers who are battling low wages/earnings, rising unemployment, etc.
At Sabo in Mokola, Ibadan, the United States Dollar was exchanged at N563 on Tuesday, even though the Central Bank of Nigeria exchanged it at N411.02 as shown below.
|10/26/2021||SOUTH AFRICAN RAND||27.7933||27.8271||27.861|
Naira to Dollar Exchange Rate Improves Slightly to N414.07/US$1
Naira to Dollar exchange rate improved further at the official foreign exchange window on Wednesday despite the ongoing economic uncertainties.
The local currency opened the day at N414.18 to a United States Dollar before closing at N414.07, representing an improvement of 0.16 percent gain.
During the day, Naira plunged to as low as N442 to a United States Dollar at spot fx market. While at the fx future market it was fairly stable at N419. Forex traders exchange $334.97 million on Wednesday.
However, the Central Bank of Nigeria published exchange rates revealed that the United States Dollar was sold at N410.89 on Wednesday to banks. The British Pound and Euro were sold at N565 and N477.74, respectively.
Central Bank of Nigeria’s Foreign Exchange Rate
|10/20/2021||SOUTH AFRICAN RAND||28.303||28.3375||28.3721|
Naira Gained 0.08 Percent to N414.73 Against the United States Dollar on Monday
The Nigerian Naira gained against the United States Dollar on Monday after falling to a record low of N422 per US dollar on Friday at the official forex window.
The local currency opened at N414.46 to a United States Dollar, a 0.15 percent improvement from Friday’s closing price.
Naira dropped as low as N425 to a United States Dollar at the spot forex market and to N429.50 at the forward forex market before closing at N414.73 to a United States Dollar at the spot forex market. Forex traders traded $172 million at the official forex window on Monday.
Forex scarcity across key foreign exchange segments and the decision of the central bank of Nigeria to halt the sale of forex to Bureau de Change operators continue to impede forex access in Africa’s largest economy.
Vice President Osinbajo had suggested that the apex bank should look to adopt a new forex policy to better close the gap between the black market and official rates. At the unregulated black market, traders are selling at N570 to US dollar.
This, the Vice President said was what was sustaining the black market.
“For context, the Vice President’s point was that currently the Naira exchange rate benefits only those who are able to obtain the dollar at N410, some of who simply turn round and sell to the parallel market at N570. It is stopping this huge arbitrage of over N160 per dollar that the Vice President was talking about. Such a massive difference discourages doing proper business, when selling the dollar can bring in 40% profit!, stated Laolu Akande, Senior Special Assistant to the President on Media & Publicity, Office of the Vice President.
“This was why the Vice President called for measures that would increase the supply of foreign exchange in the market rather than simply managing demand, which opens up irresistible opportunities for arbitrage and corruption.”
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