Naira settles at N1,778/£ as British Pound advances against US dollar

Naira settled at the N1,778/£1 band against the British Pound at the second trade session of the week in Nigerian foreign exchange market. The pair has traded in a relatively tight consolidation band in the last 30 days.

The pair ranged between N1,749/£1 at the low end and N1,841/£1, considering the wider 90-day picture.

Immediate Resistance: N1,785£1 – N1,790/£1 – A weekly settlement break could launch price action to test the psychological N1,790/£1 level.

Current Support Level: N1,779.4/£1 – The day’s low; a break below this level would be indicative of short-term resistance. External shocks in recent years resulted in the pair breaching the N2,000/£1 mark, while recent months have shown convergence and moderate appreciation of the Naira as market liquidity metrics begin to take hold.

The CBN has had an aggressive tightening cycle, raising or holding stable key policy rates to rein inflation and boost foreign portfolio investments in Naira assets. Nigeria’s gross reserves are $55.1 billion; net FX (without short-term FX swaps and forward commitments and FX liabilities) is estimated at $46 billion.

CBN remains focused on gradually transitioning to a more transparent, market-determined FX rate regime, and reducing the widening disparity between the official market and parallel market rates. They are directed towards clearing the FX backlog and meeting valid commercial FX demand through the official window.

The Nigerian Apex Bank constructed a risk-adjusted attractive yield for offshore investors by sustaining higher yields on the short-term government paper (Open Market Operations/OMO bills and Nigerian Treasury Bills).

Increased portfolio inflows strengthen dollar liquidity in the domestic market, which can naturally support the Naira without the CBN having to deplete its reserves.

The British Pound is higher against the US Dollar USD at $1.34 during the European market session on Wednesday. The Pound has gained on the back of higher than forecasted UK Consumer Price Index (CPI released today for September has led to a hawkish market forecast for Bank of England.

Recently, the Office for National Statistics (ONS) revealed the headline inflation rate, which rose by 3.5% YoY, higher than both the forecast (3.4%) and the previous reading of August (3.1%). Also, the CPI, excluding temporary parts of food, energy, alcohol and tobacco, increased at a faster rate, year-over-year, at 2.8% as against forecasts of 2.7%.

Market participants contend the path is now largely pre-set in the short term, with the BoE, for instance, set to hike the bank rate 25bp in November.

Markets comment that money markets are already discounting a further prolonged hiking cycle, highlighting that the Fed Reserve Bank is aggressively priced for another three hikes by next summer to 4.75% unless progress in inflation stalls and the economy continues to outperform into 2027.

Looking ahead, investors will watch for the UK Retail Sales (MoM) for September and flash S&P Global PMI (MoM) data for October on Friday. At the same time, the US Dollar comes under selling pressure because of fears and speculation about the United States (US) AI growth and speculation that the Fed will pause interest rates at the upcoming monetary policy meeting.

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