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Pound Slips as Uncertainties About Post-Brexit Trade Linger

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U.K. pound
  • Pound Slips as Uncertainties About Post-Brexit Trade Linger

The pound declined the most in a week against the dollar amid lingering uncertainties about how long it will take for the U.K. to forge post-Brexit trade agreements with the European Union.

Sterling, which depreciated against most Group-of-10 peers, also reached a 10-month low versus the euro. Prime Minister Theresa May’s government is releasing a third paper Tuesday on how it sees its future relationship with Europe. Britain and the EU still haven’t reached an agreement on when it would be time to start discussing a trade deal.

  • The pound has been buffeted not just by political uncertainty but also by underwhelming data
    • While a report released Tuesday showed that Britain posted its first July budget surplus in 15 years last month, debt costs in the fiscal year to date rose by 23 percent, the biggest increase for the period since 2010. Recent data has showed consumers flagging and wage growth lagging inflation
    • “Better-than-expected public finance data is failing to support sterling,” said Neil Jones, the head of hedge fund sales at Mizuho Bank Ltd. “My sense is fresh news from the U.K. subprime sector may be sending off early alarm bells on consumer lending. The global subprime crises may be 10 years old but we remember it like yesterday”
  • Turmoil at Provident Financial is also weighing on pound, Jones says, with the stock slumping the most on record as Chief Executive Peter Crook stepped down and as the subprime lender forecast a full-year loss and scrapped its dividend
  • GBP/USD falls 0.4% to 1.2849, approaching 1.2832 reached on Aug. 18 which was the lowest in a month
    • Support at 1.2832, Aug. 18 low, resistance at 1.2917, Aug. 18 high
  • While the Brexit papers are a positive development, it’s failing to support the pound, likely “due to the fact that EU’s reaction so far has been muted,” analysts at Commerzbank, including Esther Reichelt, write in note
    • “That means that the next round of negotiations that start next week acquires particular significance”
    • The “Brexit risk premium therefore remains one of the major factors putting pressure on sterling,” they write
  • The latest details the U.K. government will provide focus on civil judicial cooperation ahead of a much-anticipated document Wednesday on the role of the EU Court of Justice
  • EUR/GBP little changed at 0.9163, having earlier reached 0.9173 which was the highest level since Oct. 7
    • Tops 0.9153 Fibonacci hurdle which opens up GBP ‘flash crash’ spike level at 0.9415
  • Yield on 10-year gilts rose 1bp to 1.08%

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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