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Pound Slides as BOE Cuts Rate

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British pound

The pound fell the most in more than four weeks after the Bank of England cut interest rates for the first time since March 2009, part of a suite of stimulus measures to help boost the economy after the U.K.’s vote to leave the European Union in June.

Sterling dropped at least 1.4 percent against all of its 16 major peers after the nine-member Monetary Policy Committee voted unanimously to lower the benchmark rate by 25 basis points to a record-low 0.25 percent. Officials led by Governor Mark Carney increased the central bank’s asset-purchase target for the first time in four years, raising the target by 60 billion pounds ($79 billion) to 435 billion pounds. U.K. government bonds jumped, pushing the 10-year gilt yield to a record low.

The MPC also said it will buy as much as 10 billion pounds of corporate bonds in the next 18 months, though there was disagreement among the nine members about whether quantitative easing was warranted at this stage. Options trading showed the pound could fall further in coming months.

Brexit ‘Headwinds’

“The BOE clearly is willing to provide an array of stimulus policies because it thinks that the U.K. economy is going to face substantial headwinds from Brexit,” said Peter Frank, global head of Group-of-10 currency strategy at Banco Bilbao Vizcaya Argentaria SA in London. “I think the BOE and the government is keen to see a much weaker pound.”

The pound fell 1.5 percent to $1.3126 as of 4:02 p.m. London time, the steepest decline since July 5, a day before it touched a 31-year low of $1.2798. Sterling weakened 1.4 percent to 84.85 pence per euro.

The decision to cut borrowing costs was forecast by all but two of 52 economists surveyed by Bloomberg, with the majority predicting a 25 basis-point reduction. Before the announcement, swaps pricing showed a 100 percent chance of a cut.
Economists in a separate survey were less certain about the possibility of the BOE announcing further stimulus measures, with 23 of 44 analysts forecasting no change to the the central bank’s quantitative-easing plan.

‘Further Easing’

“We feel this is an appropriate first step and anticipate further easing from the MPC in the coming months as the growth outlook becomes clearer,” said David Zahn, London-based head of European fixed income at Franklin Templeton Investment Management Ltd. “This is good news as it is supportive of the bond market. However, in general this will be slightly bearish for the pound.”

The pound has declined almost 12 percent against the dollar since the nation opted for Brexit, weakening for a third consecutive month in July, as economic consequences of the decision began to surface.

Derivatives trading suggested the pound will weaken further. The premium for three-month options granting the right to sell the currency against the dollar relative to those for buying rose 16 basis points to 1.07 percentage points. That’s still lower than the level on the referendum day when it was 4.13 percentage points.

On a longer-term horizon however, that concern was less pronounced. The premium for 12-month options was little changed at 1.635 percentage points.

Benchmark 10-year gilt yields dropped 16 basis points, or 0.16 percentage point, to 0.64 percent, having earlier touched 0.634 percent. The 2 percent bond due in September 2025 rose 1.505, or 15.05 pounds per 1,000-pound face amount, to 111.985. The nation’s two-year gilt yield fell eight basis points to 0.12 percent, after reaching 0.07 percent, the lowest since July 1.

“So the BOE delivered a dovish surprise as regards QE measures,” said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “Only roughly half the market probably had expected an increase of QE, probably less the introduction of corporate bonds. The BOE wants to set a clear signal that it has switched into crisis mode.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Forex

Naira Remains Flat Against US Dollar, Euro

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500 and 1000 naira bills (Nigerian currency)

Naira Exchange Rate Remains Flat Against US Dollar and Euro on Black Market

The Naira remained unchanged on Tuesday despite the curfews and social unrest that grounded the nation’s economy.

Naira traded at N463 against the United States dollar on the black market on Tuesday morning, the same rate it exchanged on Thursday.

Against the European common currency, the Nigerian Naira exchanged at N540 to a single Euro.

However, the local currency dipped slightly against the British Pounds as it exchanged at N595 to a British Pound, representing a N3 decline from N592 it traded on Friday.

Social unrest amid weak economic fundamentals continued to weigh on Nigeria’s local currency, especially with Foreign Direct Investment expected to drop in the final quarter of the year through the first quarter of 2021.

This coupled with weak foreign reserves and a drop in global demand for crude oil is expected to compound Nigeria’s economic woes.

Lagos State governor, Babajide Sanwo-Olu, has said Nigeria’s commercial capital needs at least N1 trillion to fix the destruction and vandalisation that trailed the #EndSARS protest in the state. An amount equivalent to the state’s annual budget.

Experts, who spoke on the situation, said it would hurt the nation’s output and may plunge fourth-quarter GDP by as much as 6.9 percent. These rising uncertainties amid the second wave of COVID-19 and possible lockdown in key trading partners could further plunge Naira value against global counterparts in the fourth quarter of the year.

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Transparent Exchange Rate Can Boost Nigeria’s Forex Inflow

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Transparent Exchange Rate Can Improve Nigeria’s Diaspora Forex Inflow

Experts that gathered at a virtual summit organised by Ecobank Nigeria with a theme, ‘Financial Services & Remittance Solutions for Nigerians in Diaspora: Leveraging Ecobank’s Pan-African offering’, have said Nigeria can boost foreign exchange inflow through proper engagement and a transparent exchange rate.

Mr. Patrick Akinwuntan, Managing Director of Ecobank Nigeria, in his opening speech, said growing evidence has shown that diaspora remittances were positively impacting economies of various nations in the world.

Akinwuntan put the total annual remittances to Nigeria at around $20 billion per year, saying it boosts the nation’s foreign exchange earnings.

Speaking on how these remittances can be sustained, he said constant engagement with Nigerians abroad is imperative and it is the reason Ecobank is leveraging its digital technology through Rapidtransfer App and Ecobank mobile App to ensure affordable and easy transfer of funds by Nigerians abroad to their home country.

“Our dedicated Rapidtransfer, mobile remittance app is a game-changer for the market. It enables Africans and indeed Nigerians wherever they are to easily and instantly send money to bank accounts, mobile wallets and cash collection in – and across – 33 African countries.

“Historically, the cost of sending cross-border remittances to Africa has been far too high at about 6%-7%. Similarly, the process to send funds has long been inefficient and burdensome, with customers typically needing to go physically to an agent sometimes late in the night or in poor weather with attendant discomfort and risks.

“The Rapidtransfer app remittance solution is a quick, easy and reliable digital solution that removes all of these issues. It is indeed a game-changer for Nigerians and all Africans with its sustainable and standout affordability,” he said.

Speaking on transaction charges, the Ecobank Managing Director said transfer fee range from zero to about 3 percent as compared to 6 – 7 percent charge elsewhere.

He added that the bank’s instant transfer and transparent exchange rate is a unique factor its competitors do not possess.

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Naira to Dollar Rate Today: Naira Exchanges at N463 to Dollar on Black Market

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Naira to Dollar Rate on Black Market Today Stood at N463

The Nigerian Naira to dollar rate slid slightly against the United States dollar on Tuesday on the black market as social unrest continues to weigh on the nation’s economic outlook.

The local currency lost N1 against the US dollar to N463 while against the British pound it remains pressured at N592.

This decline continues against the European Union’s common currency, the Euro. The Naira traded at N540 to a single Euro on the black market.

Naira to dollar rate plunged amid rising economic uncertainties and unclear policy path caused by both COVID-19 and government limited fiscal buffers to cushion the negative impacts of the virus on Africa’s largest economy.

This coupled with the ongoing social unrest by the Nigerian youths to force decorum across the Nigerian Police Force and call global attention to decades of systemic intimidation and harassment of innocent citizens.

The Nigerian Stock Exchange has been closing flat since Thursday and continued this week, suggesting that investors are concerns and wary of eventualities as they look to safeguard their investments.

Again, the projected third-quarter recession, low foreign revenue generation, weak consumer spending and the rising cost of living are some of the factors hurting the Nigerian Naira outlook.

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