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Euro Falls to 10-month Low After Italy Debt Selloff

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  • Euro Falls to 10-month Low After Italy Debt Selloff

The euro fell on Tuesday to a 10-month low after a selloff in Italy’s debt market drove investors to dump the single currency.

A deepening political crisis in Italy, the euro zone’s third biggest economy, provoked selling of Italian assets and the euro that was reminiscent of the euro zone debt crisis of 2010-2012.

But the impact was not felt as keenly on currency markets as in Italian government bonds which suffered their worst day in more than 25 years.

Italy’s president has set the country on a path to fresh elections by appointing a former International Monetary Fund official as interim prime minister, with the task of planning for snap polls and passing the next budget

Investors fear a polarising election campaign which could deliver a deeply eurosceptic government, threatening the bloc’s cohesion.

The euro has fallen 4 percent this month amid a resurgent dollar and rising concerns over the euro zone’s political and economic situation.

The currency slipped on Tuesday below $1.16 for the first time since November 2017 to hit the 10-month low of $1.1510 and weakened significantly against the safe haven Swiss franc and Japanese yen.

The Danish crown, which is pegged to the euro, strengthened 0.1 percent against the single currency in a further sign of a fallout from Italy.

“A surging dollar has weakened the euro but now it is all about risks from Italy and the impact the crisis there could have on the European Central Bank’s monetary policy,” said Commerzbank analyst Ulrich Leuchtmann.

“The underlying problem here isn’t Italy, though, but a fundamental question about the euro zone, a political experiment lacking a fiscal union which can fail if fair growth and wealth are not achieved,” he said.

Financial markets expect the ECB to wind down its 2.55 trillion-euro stimulus programme by the end of this year and raise its policy interest rate towards the middle of next year.

Weaker-than-expected economic data out of the euro zone, however, has raised questions about that.

DOLLAR INDEX UP

Viraj Patel, a currency strategist at ING in London, noted that the spillover effect on the euro from the Italian bond markets was limited but said that could change if the selloff forces investors to dump other peripheral debt.

The euro is set for its biggest monthly drop in more than three years, according to Thomson Reuters data.

The closely-watched Italian-German 10-year bond yield spread, seen by many investors as an indicator of sentiment towards the euro zone, was at its widest level since June 2013..

With a decline in U.S. Treasury yields also weighing, the dollar dropped about 0.6 percent on Tuesday to a three-week low of 108.730 yen.

On Monday the dollar rose briefly to 109.830 yen as U.S.-North Korea summit plans appeared back on track.

The dollar index against a basket of six major currencies was up half a percent on the day at 95.025, hitting a 6-1/2 month high.

But the renewed dollar strength was less a function of increasing U.S. inflation expectations than a mirror image of euro lows, said Ken Odeluga, a market analyst at City Index.

The Australian dollar, sensitive to shifts in risk sentiment, was down 0.3 percent at $0.7525.

Analysts at MUFG said that if tightening financial market conditions abroad begin to feed back into the U.S. domestic economy, that could become a problem for the Federal Reserve.

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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