- Dollar Pares Decline After Nafta Anxiety Defused
The dollar recovered early losses after U.S. President Donald Trump ruled out a withdrawal from Nafta. European stocks fell as investors absorbed a string of news from corporate earnings to central bank decisions and plans to overhaul U.S. taxes.
The Mexican peso and Canadian dollar jumped, reversing earlier declines, as the White House said it won’t immediately terminate participation in the North American Free Trade Agreement. U.S. stock futures signaled a higher opening while European shares retreated from a six-day rally.
Investors are searching for fresh impetus after an underwhelming tax cut plan from the White House. The Nafta statement emerged as a distraction for the currency market, while in the bond market, the next flashpoint will be the tone of the European Central Bank’s meeting Wednesday. Emmanuel Macron’s ascent in the French election this week blunted euroskepticism, creating room for policy makers to chart out their stimulus exit plan.
“We would expect the commentary to remain relatively upbeat on the growth outlook,” Mike Bell, global market strategist at JPMorgan Asset Management said in a note. He expects the ECB to wait until January to begin withdrawing stimulus. “Despite the result of the first round of the French election soothing market fears of potential euro disintegration risk we still expect this week’s ECB meeting to be too early to signal any meaningful shift in policy.”
Here are some key upcoming events investors are watching:
- The European Central Bank is up next. ECB officials have indicated little chance of a policy change on Thursday. The focus will be on any signals from President Mario Draghi that the central bank is debating an exit from its extraordinary stimulus.
- U.S. GDP is due Friday. It’s projected to show the economy expanded at a 1 percent annualized rate in the first quarter, the weakest pace in a year.
CBN Forced Speculators, Hoarders to Sell Dollar Lower
The Central Bank of Nigeria’s new forex policy has forced many speculators and hoarders at the Nigerian parallel market popularly known as the black market to start bringing out their forex at an even lower price.
The Naira to United States Dollar exchange rate moderated from N500 to N470 earlier this morning across the nation’s black market.
Similarly, the local currency exchanged at N620 to a British Pound, an improvement from N640 it was sold on December 1, 2020.
The story is not different against the European common currency as it gained slightly to N570, up from N580 it sold on Tuesday.
The improvements recorded against global counterparts was after the CBN directed that henceforth recipients of foreign remittance can now receive such fund in foreign currency (US Dollar) in cash or through an ordinary domiciliary account.
This means the apex bank planned to inject $20 billion estimated diaspora remittances per year into the real sector of the economy to force hoarders to sell their dollars or lose substantially and also to curb forex dealers in the habit of buying forex directly from the recipient’s domiciliary account because of old CBN policy that restricted them from withdrawing foreign currency in cash.
With this old policy out of the way, recipients of foreign remittances can now withdraw foreign currency and exchange it at any of the registered bureau de change operators across the nation at N392 to a US dollar. The bureau de change rate set by the central bank.
Investors King expects the policy to fast track the recovery process and enhance economic activity across the board, especially at a time when importers are looking for forex to bring in goods in order to meet the usual December high demand.
Naira Exchange Rate Improves as CBN Plans to Flood Economy With $20 Billion Diaspora Remittances
The Naira to US Dollar exchange rate improved by N10 to N490 on Tuesday following the Central Bank of Nigeria’s new directive that allows recipients of diaspora remittances to receive their fund in foreign currency (US Dollar) or via their ordinary domiciliary account.
The move was after the apex bank blamed the parallel market for the wide foreign exchange rate and cautioned analysts for using speculative rates as the real Naira/US dollar rate.
Therefore, the apex bank decided to inject $20 billion annual diaspora remittances into the real sector of the economy and hurt the activities of unscrupulous individuals at the parallel market.
Investors King expects this to gradually moderate the nation’s foreign exchange rate against global counterparts, deepen business activities and fast track economic recovery.
CBN Amends Forex Receipt as Naira Hits Record Low
In a bid to simplify and finally liberalize the receipt of diaspora remittances, the Central Bank of Nigeria (CBN) has amended its receipt procedures to allow beneficiaries of diaspora remittances receive such inflows in foreign currency (US Dollars).
The apex bank stated in a circular signed by Dr. O.S. Nnaji, Director Trade and Exchange Department, CBN.
In the circular, recipients of remittances can now receive funds in either foreign currency cash (US Dollars) or into their ordinary domiciliary account.
While the International Money Transfer Operators (IMTOs) will henceforth receive diaspora remittances in foreign currency through the designated bank of their choice.
The CBN plans to ease forex scarcity, speed up the recovery process and checkmate the activities of speculators and hoarders at the black by injecting diaspora remittances estimated at about $20 billion per year into the real economy.
This is expected to not just improve business activities but also moderate foreign exchange rate from the current N500/US$ and move the central bank a step closer to unifying the nation’s foreign exchange rates.
The circular partly reads “In an effort to liberalize, simplify and improve the receipt and administration of diaspora remittances into Nigeria, the Central Bank of Nigeria (CBN) wishes to announce as follows;
“Beneficiaries of Diaspora Remittances through International Money Transfer Operators (IMTOs) shall henceforth receive such inflows in foreign currency (US Dollars) or into their ordinary domiciliary account. Such recipients of remittances may have the option of receiving these funds in foreign currency cash (US Dollars) or into their ordinary domiciliary account.”
Nigerians to Start Receiving Remittance Inflows in Foreign Currency Today
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