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Forex Weekly Outlook February 20-24

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U.S dollar - Investors King
  • Forex Weekly Outlook February 20-24

The US dollar gained against its counterparts last week, after data showed producers price index rose 0.6 percent and inflation also surged 0.6 percent in January. Buttressing the general perception that increased in gasoline cost will pressure consumer prices above the Fed 2 percent inflation target and force the FOMC to adjust interest rates.

However, wage growth remained below projection, plunging to 2.5 percent from 2.8 percent recorded in December, which is capable of hurting consumer spending (0.4%) that has been supporting the economy if the Fed hike rate with declining wages. Therefore, it’s unlikely the fed will move this March as widely speculated, however, Trump new tax policy due to be announced this week can change this view.

On tax policy, the possibility of law makers cutting corporate tax to 20 percent from current 35 percent and the Fed’s hawkish outlook boosted the attractiveness of the US dollar last week. Although, retail business owners are worried that the proposed border tax on import goods will hurt revenues and subsequently affect wages, law makers insisted it will help generate about $1 trillion needed to reduce the deficit. Hence, it is hard to quantify or deduce the US dollar direction ahead of new tax policy.

In the UK, the consumer spending (0.3%) that has been supporting the economy dropped for a third consecutive month in January, signaling that post-Brexit resilience is gradually coming to an end as high consumer prices (food and fuel) seems to have started hurting purchasing power even before March – stipulated date for triggering Brexit.

Consequently, job creation is gradually slowing down, according to the statistics office report for the final quarter of 2016. Also, pay growth fell to 2.6 percent in the same quarter, while labour market is still strong, the pace has cooled in recent time over Brexit uncertainty. Therefore, this is expected to weigh on the British Pound and render it unattractive as investors continued to look elsewhere to avert lost.

In New Zealand, consumer spending remains steady in the last quarter of 2016. Rising 0.8 percent, but the New Zealand dollar declined against its counterparts after RBNZ governor said the continuous gain of the currency could impede growth. Prompting traders to sell-off the haven currency. Overall, the global financial market remains vague ahead of Europe uprising and uncertainty in the US.

This week, GBPUSD and NZDJPY top my list.

GBPUSD

The series of events happening in the Euro-area continued to weigh on the pound outlook. However, Brexit and drop in consumer confidence standout. Whereas the US dollar remained strong and likely to continue so.

Forex Weekly Outlook February 20-24

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Technically, after the pair peaked at 1.2773 in December, its highest post-Brexit, it has lost about 363 pips and failed to top 1.2704 price levels attained this February. Again, the pair is trading below 20-days moving average on the daily candlestick and closed below weekly 20-days moving average, after the doji formed two weeks ago. Indicating the pressure is on the downside as the U.K. prepare to trigger article 50 next month.

Forex Weekly Outlook February 20-24

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This week, I am bearish on GBPUSD as long as 1.2500 holds and will be looking to sell below 1.2426 price levels for 1.2297 targets, a sustained break should open up 1.2148 in days to come. But a negative comment or perceived negative new policy from the U.S. can void this analysis as the world await Trump new tax policy.

NZDJPY

Last week, I wrote extensively on the New Zealand dollar outlook. While the economy remains strong and well-supported by the surging commodity prices, traders seem to be selling the pair after Governor Graeme Wheeler statement on the danger of high foreign exchange to the economy.

Forex Weekly Outlook February 20-24

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The pair called the top at 83.79 price levels, its 8-month high, and dropped 280 pips to close at 81.07 price levels. One of the reasons this is a good sell is the renewed interest in the Japanese yen as investors scramble for safe-haven assets ahead of numerous changes that will be taking place across the Group 8 nations. Again, I don’t think the pair is attractive enough to top its 8-month high after RBNZ statement. Hence, I am bearish on this pair this week and will be looking to sell below 81.02 support for 78.83 targets, a sustained break should boost its attractiveness for 76.23 targets 2.

Last Week Recap

NZDUSD closed below the channel last week but failed to meet our target of 0.6989. However, I remain bearish on NZDUSD this week, one, for the reasons stated above, and two, the continuous gain of the US dollar should aid NZDUSD bearish move below 0.7124 support levels, that also serves as 20-days moving average.

Forex Weekly Outlook February 20-24

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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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naira

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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New Naira notes

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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Forex

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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