The naira has been stable against the British pound this month.
CBN’s latest data showed the British pound’s most recent settlement price against the naira was1 N,765/£1.
Naira’s stability is closely tied to Nigeria’s official foreign reserves, foreign direct investment flows, and, of course, oil export receipts.
The CBN often injected liquidity into the official FX markets to soften volatility.
The recent FX market liberalization in Nigeria has narrowed the gap between the parallel market and official rates.
The compression did away with large-scale roundtripping, shifting pricing back to a market-reflective supply and demand pricing model. Nigeria’s gross foreign exchange reserves have risen to $55.1 billion and hit their highest level in 18 years, signaling a paradigm shift in the macro-outlook of the Naira across major foreign currency pairs,
Nigeria’s gross reserves are ~ $55.1 billion. Net foreign reserves (excluding short-term FX swaps and forward commitments and foreign currency liabilities) are estimated to be close to $46 billion
This ratio of gross to net reserves of $9.1 billion is lean by historical standards, which leaves CBN with considerable firepower to punch the NAFEM window, or directly intervene during bouts of speculative attacks.
The pair has been slowly reversing from high levels early in the year (near 1,948) down to the most significant technical support levels at approximately 1,750. Relative Strength Index (RSI): Neutral (near 45-50). This means there is neutrality between sellers and buyers, in line with a sideways range.
There is some horizontal price action, and the short-term EMAs (20-day) are leveling off into a range of 1,775/£1.-1,790£. Price action near the 50-day moving average shows that there isn’t any single clear direction on the immediate short-term horizon. Expectations for a BoE easing of monetary policy or keeping the benchmark interest rate constant control the strength of the overall UK currency versus all emerging market currencies.
Nigeria derives its biggest foreign exchange earnings from oil exports. Hence, foreign currency earnings in Nigeria are defined by the level of both global crude oil prices and local oil production. In the same way that oil profits increase the CBN’s reserve mix, they also bolster the NGN against foreign currencies such as the GBP.
British pound maintains gains against the greenback
The British pound remained modestly bid for the second consecutive day against the dollar on Friday, bouncing further away from the year-to-date lows, around the 1.3135 region touched earlier this week.
The bullish sentiment is nudging the spot prices towards the $1.3325 neighborhood or levels not seen since the beginning of the month during the early European trades, supported by a combination of factors.
US inflation figures higher than expected haven’t stopped investors from pricing in the fact that the Fed will hold interest rates at the meeting scheduled for the end of this month.
Those bets were reinforced by today’s more neutral comments by Fed Chair Kevin Warsh, with the US Dollar pushing a one-and-a-half-week low on the back of a steep tumble in US bond yields. GBP remains supported by hawkish comments from Bank of England (BoE) Andrew Bailey and better-than-expected UK gross domestic product (GDP) data.