- U.K. Manufacturing PMI Expands at 8-month Low; Pound Dips
UK manufacturing activities grew at an 8-month low in February as companies struggle to cope with an increase in demand due to suppliers inability to meet raw material demands.
Manufacturing Purchasing Managers’ Index declined marginally from 55.3 in January to 55.2 in February, the IHS Market reported on Thursday. The slowest PMI reading since June.
But, experts attributed the weak growth rate to disruption in supply chain during the month.
Duncan Brock, director of customer relationships at the Chartered Institute of Procurement and Supply, said “Amidst these signs of a moderate slowdown, it was supply chain disruptions that were largely at fault,” he said. “Suppliers underperformed not only on the timely delivery of goods but in their inability to meet the demand from makers for some raw materials.”
However, employment in the sector rose for the 19th consecutive month as businesses struggle to meet rising demands despite raw material shortages and rising costs.
Also, both domestic and overseas orders expanded at a healthy pace in the month, with exports rising for 22 consecutive months.
“New export business rose for the 22nd successive month in February,” said Markit. “Where an increase was reported, this was linked to improved sales to clients in the USA, China, Europe, Brazil and East Asia.”
While the manufacturing sector remained healthy, continuous disruption of the supply chain may lead to inflationary pressures. Therefore, growing new investment in the sector is needed to sustain growth.
The Pound Sterling
The pound sterling closed below 1.3802 support level against the U.S dollar on Wednesday for the first time since January 17th.
This was because of the disagreement between the U.K. and the European Union on North Ireland’s border control stated in the 118 page ‘Brussels’ draft Brexit’ treaty released by the European Union on Wednesday.
U.K. Prime Minister Theresa May has voiced her disagreement and reiterated that EU cannot keep North Ireland under EU’s customs area as that would split the U.K. into two.
According to Mrs. May, the EU draft would “threaten the constitutional integrity of the UK” by creating a border down the Irish Sea.
The inability of the two to reach a concrete agreement ahead of Theresa May’s Brexit speech due on Friday is likely to increase Brexit uncertainty and further weigh on the embattled pound.
However, because of the uncertainty surrounding the U.S. international trade policy following President Trump’s 25 percent and 10 percent tariff increment on steel and aluminum, and threats from affected nations to retaliate. It is advisable to trade GBPUSD with caution.
A unique alternative will be GBPJPY as projected in the forex weekly outlook. A close below our first target at 146.81 price level should open up 143.65 support level in days to come. Especially with the uncertainty surrounding Brexit.
Naira Slides Against US Dollar as CBN Devalues Naira
Naira Remains Pressure Against US Dollar as CBN Devalues Naira by 5.54%
The Naira remained at a record low against the United States dollar on the black market amid broadly expected devaluation announcement from the central bank.
The Naira was exchanged at N461 to a US dollar on the black market on Tuesday and early morning of Wednesday. Its lowest in almost three years.
This decline continues against the British Pound as the local currency traded at N558, depreciated by N3 from the N555 it traded during the weekend.
Against the Euro common currency, the Naira opened the day from N504, representing N2 depreciation from the N502 it was exchanged on Tuesday.
On the Investors and Exporters’ Forex Window, the local currency remained flat on Tuesday at N386.50 to a United States dollar. However, it opened at N387.32 on Wednesday and quickly hits N391.35 before pulling back at around 2:18 pm Nigerian time.
Accordingly, investors traded a total turnover of $103.37 million during the trading hours of Tuesday, according to the FMDQ Group.
The latest data on the FMDQ Group website shows that the Central Bank of Nigeria (CBN) official exchange rate was moved by 5.54 percent from N361 per US dollar to N381. This further validated the recent rumour that the International Monetary Fund (IMF) was forcing the Federal Government to abide by one of the main conditions of the $3.4 billion loan procured in April before it can access the $1.5 billion request presently before the Fund.
The IMF had requested for a unified foreign exchange rate across the market and demanded the apex bank allow market forces to dictate forex rates.
Therefore, despite the Federal Government reluctant to adjust the nation’s foreign exchange, the weak foreign reserves amid rising demand for US dollars by foreign investors looking to abandon the economy has compelled the apex bank to move its official exchange rate from N360 to N380 per US dollar to investors and exporters.
CBN Devalues Naira Again, Official Rate Now N381/$ on the I&E Forex Window
CBN Devalues Naira by 5.54% Against the US Dollar
The Central Bank of Nigeria (CBN) has devalued the Nigerian Naira once again, according to the available data on the FMDQ Group.
The apex bank devalued the local currency by 5.54 percent from N361 to N381 against the United States dollar, making it the second time in the last six months that the Naira would be devalued to commodate the change in economic fundamentals and the nation’s dwindling revenue generation.
The apex bank first devalued the Naira by 15 percent in March following more than 60 percent decline in global oil prices and substantial depreciation in the nation’s foreign reserves due to COVID-19 disruption.
This coupled with Nigeria’s weak fiscal buffer weighed on the nation’s economic outlook as experts, investors and businesses immediately started projecting that at some point the apex bank would be forced to devalue the local currency again.
However, despite the central bank calling them speculators and hoarders with one motive, to profit from the nation’s economic situation. They insisted that with crude oil projected to remain between $35 to $45 per barrel through 2021 and foreign reserves already weak at $36.151 billion in a nation where over 90 percent of what its citizen consumes are imported, the apex bank will lose its ability to intervene at the nation’s foreign exchange, especially with foreign investors looking to move out about $5 billion.
While the central bank has not updated the quote on its official website from N360 to N380 as shown below, it has started selling to investors and exporters at N381, up from the old N361.
Again, this explained why the Naira-USD exchange rate slid to N461 on the black market in the last two weeks and remained between N460-N462 ever since.
CBN Starts Using N380/$ Official Rate, Expects to Make it Official Soon
CBN Moves Official Exchange Rate to N380 Per US Dollar
The Central Bank of Nigeria (CBN) has started using N380 as its official exchange rate for the United States dollar, according to a BusinessDay report.
The report noted that the apex bank recently disbursed the Federal Government’s monthly allocation to the three tiers of government using the new forex rate. Therefore, resulting in over N70 billion extra payment.
While the apex bank is yet to make an official announcement and still have the N360 exchange rate stated on its website as the nation official rate, an anonymous senior official of the central bank interviewed by BusinessDay said “yes, it is aimed at moving the rate closer to that of the Investors and Exporters (I&E) window, which traded at N386/$1 yesterday.
“From time to time, adjustment would continue to happen, either upward or downward in line with market fundamentals. Certainly, no single rate can be achieved, but we would keep moving towards I&E rate.”
It would be recalled that Godwin Emefiele, the Governor, CBN, about ten days ago told a group of foreign investors that the apex bank is working towards achieving a single foreign exchange rate around the Nigerian Autonomous Foreign Exchange Market (NAFEX)/Investors and Exporters’ Forex window.
The CBN governor had stated that “what we mean by exchange rate unification is moving towards the NAFEX. NAFEX is our dominant market for the purchase and sale of forex and it is a free market where everybody is free to sell their dollars and those who want to buy are free to buy dollars.
“That means that whether you are a businessman, a bank, CBN, and you have dollars, you can bring it to the market to sell and if you want to buy dollars, you can come to the market.
“Like some of you must have seen, three years before 2019, we saw a relatively stable forex market because the NAFEX rate and even the rate at which the central bank transacts business outside the NAFEX were substantially close to each other. So, the CBN will continue to pursue unification around the NAFEX.”
Meanwhile, the Nigerian Naira traded at a record low of N462 against the US dollar on the black market during the weekend.
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