Navigating High Uncertainty: The Naira's FX Liquidity Challenges

Despite the bullish dollar index in the global financial market, the Naira began Friday's session at N1,580/$ per dollar in the parallel market, down from N1,590/$ on Thursday.

The naira is weak, according to recent socioeconomic fundamentals in Nigeria.

Because Nigeria depends heavily on fossil fuels for its foreign exchange revenues, the naira is a derivative of crude oil. The Nigerian currency is suffering due to worries about sluggish demand, rising trade tensions between the United States and significant trading partners, and hikes in OPEC+ production quotas.

Commercial banks have been accused by Nigerian Bureau de Change operators of failing to sell them foreign cash.

Aminu Gwadabe, president of the Association of Bureau de Change Operators of Nigeria (ABCON), expressed worry that BDCs are having trouble with a lack of foreign exchange.

Despite CBN efforts to improve rates, demand for Nigerian one-year treasury bills has been steadily declining, putting the country's reliance on FPI inflows in jeopardy.

The explosion sparked a massive fire at a section of the pipeline, necessitating an immediate rerouting of the oil flow.

Nigeria produced 1.7 million barrels of oil per day at its highest point in 2024. In the next two years, the Federal Government wants to drastically raise that by almost 1 million barrels per day.

But pipeline vandalism and oil theft make such optimism nearly impossible, giving the naira a gloomy outlook.

Nonetheless, the recent drop in Nigeria's inflation rate was aided by the naira's relative stability during the first quarter.

According to NBS data, the nation's inflation rate had its first decline in 2025, reducing from 24.48 percent in January to 23.18 percent in February. The drop was caused by a stable naira, lower energy prices, and the rebasing of Nigeria's inflation index.

The dollar appreciated as traders placed bets that there would not be any short-term interest rate cuts, but concerns about higher tariffs and slower growth tempered risk appetite.

According to U.S. President Donald Trump, a rate cut by the Fed "would be great" on Thursday.

However, the central bank stated that it had no such objective, pointing to the trajectory of inflation, Trump's tariffs, and heightened economic uncertainty. The Fed also raised its inflation prediction for 2025 while downgrading its growth outlook.

Given the growing tensions between Gaza and Turkey and the lack of a clear path to a ceasefire in Ukraine, geopolitical uncertainty is still high. U.S. bond yields are declining as a result of investors seeking refuge in Treasuries owing to geopolitical and economic uncertainty.

The expectation that yields will drop once the Fed starts to lower rates is what fuels the robust demand for U.S. assets. Following the Fed's policy decision, European markets show a range of emotions, while American equities markets trade carefully.