The dollar exhibited relative stability but remained close to a two-week low on Thursday, largely influenced by the Federal Reserve’s cautious approach, as investors eagerly awaited crucial data regarding US inflation.
As the dollar’s dynamics continue to be a focal point of global financial markets, the naira faced challenges in the parallel market due to persistently high demand exceeding the available supply. Forex traders were seen trading the naira at N1045/$ against the dollar, clearly indicating growing scarcity.
This recent downward trend in the naira’s value against the US dollar has been a significant cause for concern. Since the mid-June devaluation, the naira has experienced a depreciation of more than 40%. While the measures implemented aimed to bolster Nigeria’s financial and foreign accounts, their inflationary effects proved to be of a transient nature.

Moreover, the dollar index, a metric that gauges the US currency’s performance against six other major currencies, hovered at 105.64, not too far from 105.55, which marked its lowest point since September 25. With the release of the Consumer Price Index data on the horizon, a sense of caution permeated the market.
This air of caution was underlined by a mixed report on producer prices in the United States, which saw an unexpected increase in September, driven primarily by higher energy and food costs. Nevertheless, the foundational inflationary pressures propelling factory output appeared to be subsiding. This report preceded the eagerly anticipated release of the US consumer price index data for September, which was expected to reveal moderate inflation for the past month.
In the event of a surprising drop in inflation, it would likely strengthen the argument that the Federal Reserve has concluded its tightening cycle, resulting in lower US bond yields and a weaker dollar. Conversely, a bullish surprise in the inflation data would likely motivate market participants to adjust their expectations upward regarding the Federal Open Market Committee’s potential implementation of an anticipated 25-basis point increase.
The latest Federal Reserve meeting minutes, released on Wednesday, reflected a degree of uncertainty surrounding the economy, oil prices, and financial markets, all of which have contributed to the Fed’s meticulous consideration of the appropriate magnitude of additional policy tightening. It is noteworthy that rising bond rates have been identified by some Fed members as a factor that could potentially lead to the cessation of the rate-hike cycle, as noted in recent remarks.
The CME FedWatch tool unveiled insights into the market’s expectations, revealing a 26% likelihood of a 25-basis point hike at the December meeting and a 9% probability of a similar hike at the November meeting. The dollar’s recent vulnerability has been primarily driven by the decline in Treasury yields as bond prices rallied, aligning with the Federal Reserve’s more lenient stance on future rate hikes.
Interestingly, the recovery of the US dollar is a noteworthy development, considering that Fitch downgraded the US credit rating on August 1. The downgrade came against the backdrop of the US economy’s resilience, which outpaced other major economies. In reality, interest rates have been maintained at their highest levels in 22 years, as evidenced by the Federal Reserve’s recent monetary policy meeting in September.
Despite the prevailing economic uncertainties, it is expected that the rate of interest rate reduction will decelerate between 2024 and 2025, as projected by the Federal Reserve. This nuanced approach to monetary policy underscores the delicate balancing act the Fed is undertaking to navigate the economic landscape effectively.
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