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Nigeria’s Foreign Reserves Rebound to $35.05bn Under Tinubu Administration

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Forex Weekly Outlook March 6 - 10

Nigeria’s foreign reserves climbed to $35.05 billion as of Monday, according to the latest data from the Central Bank of Nigeria (CBN).

This represents a significant recovery to levels not seen since the early days of President Bola Tinubu’s administration.

The current reserve level represents a return to the $35 billion mark last recorded on June 2, 2023, when it stood at $35.02 billion. A day after President Tinubu’s inauguration, the reserves were reported at $35.09 billion.

Since then, Nigeria’s foreign reserves have fluctuated, frequently falling below the $35 billion threshold.

The reserves dipped to a low of $32.11 billion on April 19, prompting speculation about the CBN’s intervention in the currency market to support the naira.

The naira, which was officially floated on June 14, has lost approximately 70 percent of its value against the US dollar since the market segments were harmonized.

Despite these challenges, the recent rise in reserves indicates a positive trend. In response to concerns about market intervention, CBN Governor Dr. Olayemi Cardoso said the apex bank is committed to a market-driven approach.

“We encourage a willing buyer, willing seller dynamic and aim for minimal central bank intervention, except in very unusual circumstances,” he said during the last IMF Spring meeting.

The Monetary Policy Committee (MPC) of the CBN has also highlighted the importance of improving liquidity in the foreign exchange market.

Personal statements from the committee’s 295th meeting in May, recently published on the CBN’s website, reflect a focus on maintaining a vibrant currency market.

The MPC raised the Monetary Policy Rate (MPR) to 26.25 percent while retaining other policy parameters.

Since the April low, Nigeria’s foreign reserves have appreciated by $2.98 billion, showcasing a significant recovery amidst ongoing economic reforms.

This rebound provides a measure of optimism for the nation’s economic stability, particularly as it grapples with the broader impacts of currency devaluation and inflation.

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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Forex

Zimbabwe Urged to End Dollar Dependence, Boost Local Currency

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U.S dollar - Investors King

Zimbabwe must take decisive steps to reduce its reliance on the US dollar and promote the use of its own currency, according to Information Secretary Nick Mangwana.

In an opinion piece published in the Herald newspaper, Mangwana outlined the urgent need for de-dollarization to achieve economic sovereignty, stability, and growth.

“The benefits of de-dollarization far outweigh the costs, making it an urgent imperative for Zimbabwe to break free from the US dollar grip,” Mangwana asserted.

His call comes as more than 80% of the nation’s transactions are currently denominated in dollars, a situation exacerbated by the lifting of a ban on the US currency at the start of the coronavirus pandemic in March 2020.

This move was initially intended to ease an acute shortage of foreign exchange.

Mangwana said reducing reliance on the greenback is a critical step toward regaining economic control.

“De-dollarization will help promote our local currency and diversify the country’s reserves,” he said.

By encouraging the use of the Zimbabwean dollar, the country can work towards stabilizing its economy and fostering sustainable growth.

The push for de-dollarization is part of a broader economic strategy. Last week, President Emmerson Mnangagwa hinted that Zimbabwe’s bullion-backed Zimbabwean dollar (ZiG), its sixth attempt in 15 years to establish a stable currency, may become the sole legal tender before 2030.

This move is seen as a long-term solution to the ongoing currency instability.

Mangwana’s advocacy for de-dollarization reflects a growing consensus among government officials that economic independence is vital for Zimbabwe’s future.

“Reducing our dependence on the US dollar will not be without challenges, but the long-term benefits are undeniable,” he said.

The transition to a more self-reliant economic model is expected to involve significant policy changes and strategic planning to ensure a smooth and effective implementation.

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Naira

Naira Plummets to Three-Month Low of N1,530 Per Dollar on Black Market

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New Naira notes

The naira has plunged to a three-month low of N1,530 per dollar on the parallel market, also known as the black market, amid renewed pressure on demand for the greenback by end users.

This represents a 0.65 percent or N10 decline from the N1,520 rate quoted last Friday.

According to data from online sources and street traders, this is the weakest level since March 19, 2024, when the naira was quoted at N1,570 per dollar.

“The dollar’s value has risen due to increased demand from travelers and importers. Currently, we purchase dollars at N1,520 and sell them at N1,530,” a street trader stated in Lagos.

On the official Foreign Exchange (FX) market, however, the naira saw a slight gain.

It appreciated by 0.70 percent on Friday, closing at N1,509.67 per dollar compared to N1,520.24 on Thursday, according to data from the FMDQ Securities Exchange Limited.

Despite this appreciation on the official market, the parallel market continues to experience significant volatility.

The dollar supplied by willing buyers and sellers decreased by 32.64 percent, falling to $116.88 million on Friday from $173.51 million recorded on Thursday. This drop in supply further exacerbates the pressure on the naira in the parallel market.

The intraday high on Friday closed at N1,535 compared to N1,550 on Thursday, while the intraday low was quoted at N1,450 on Friday, down from N1,430 on Thursday.

Economic analysts suggest that the disparity between the official and parallel market rates indicates underlying issues in Nigeria’s foreign exchange management and economic policies.

The continuous demand for dollars by travelers and importers highlights the challenges faced by the Central Bank of Nigeria (CBN) in stabilizing the naira.

As the demand for the dollar remains strong, the naira’s depreciation could have far-reaching effects on the economy, including increased inflation and higher costs of imported goods.

The CBN may need to implement additional measures to address the ongoing demand and supply

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Euro Drops Amid Projections of Left-Wing Win in French Elections

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Euro

The euro experienced a significant decline in early trading on Monday following initial projections indicating a left-wing coalition was poised to win the French legislative elections.

The currency fell as much as 0.4% amid growing concerns about France’s financial future under a government led by the New Popular Front (NPF).

In a surprising turn of events, the NPF emerged as the likely front-runner, contrary to earlier expectations that Marine Le Pen’s far-right National Rally would secure the most seats.

Instead, the National Rally is now projected to come in third, following President Emmanuel Macron’s centrist alliance.

French government bond futures also underperformed compared to their German counterparts, reflecting market anxiety over the potential shift in France’s economic policy.

One of the NPF bloc’s leaders, Jean-Luc Mélenchon, has vowed not to negotiate with other parties to form a government and to stand firm on the coalition’s agenda, which includes substantial increases in public spending. Such measures are expected to create friction with the European Union.

Krishna Guha, a strategist at Evercore ISI, noted the market’s mixed reaction in a client note.

“The show of support for the left/far-left and calls by far-left leader Mélenchon to enact the full hard-left NPF agenda will unsettle some investors,” he wrote.

“But we view the outcome as broadly market-friendly, with National Rally-related risks disappearing for now and the left/far-left NPF set to fall far short of a majority with essentially no prospect of being able to enact its agreed alliance agenda.”

Asian markets reacted to the news with a downturn. Shares in the region retreated, and South Korea’s three-year bond futures reached their highest levels in nearly two years.

In addition, Samsung Electronics Co. workers are expected to initiate a major labor action, the most significant in the company’s history.

Meanwhile, the People’s Bank of China announced it would conduct temporary bond repurchase operations as necessary to maintain adequate liquidity in the banking system. This move is intended to ensure stability amid the broader economic uncertainty.

Traders are also keeping a close eye on upcoming events in the United States. Federal Reserve Chair Jerome Powell’s congressional testimony and new inflation data later this week are anticipated to influence market sentiment further.

Following a soft jobs report, there is increasing speculation that the Federal Reserve might ease policy as early as September.

The recent nonfarm payrolls data indicated a slowdown in US hiring and wage growth, coupled with a rise in the unemployment rate to its highest since late 2021.

This has bolstered expectations of a potential rate cut by the Federal Reserve, adding another layer of complexity to the global economic outlook.

Back in the US, President Joe Biden is facing renewed challenges within his own party as he gears up for a reelection campaign. Despite achieving his best showing in recent polls, Biden continues to navigate a turbulent political landscape.

As the week progresses, market participants will be closely monitoring rate decisions from central banks in New Zealand and South Korea, as well as earnings reports from major US banks, including JPMorgan Chase & Co.

These developments, coupled with Powell’s testimony and subsequent remarks from Fed officials, are expected to provide critical insights into the future direction of economic policy.

In the commodities market, oil prices ticked up ahead of reports from the Organization of Petroleum Exporting Countries and the International Energy Agency, which are expected to shed light on global crude balances.

Also, traders are tracking the path of Tropical Storm Beryl as it approaches Texas, which could impact oil supply and prices.

Gold, on the other hand, eased off the six-week high it reached last week, reflecting the fluctuating market dynamics.

As the political landscape in France and economic indicators globally continue to evolve, investors remain vigilant, adjusting their strategies to navigate the uncertainties ahead.

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