The Nigerian naira has made significant strides against the British pound this year in unofficial markets. Bolstered by increased inflows from Foreign Portfolio Investors (FPIs) and a growing confidence in the local currency, the naira’s bullish trajectory has been hard to ignore.
Recent reports indicate that on Thursday, the naira settled at N1593 against the British pound, showcasing a noteworthy gain of N821 from its low of N2414 against the pound recorded on February 24, 2024.
Despite the resilience of the British pound, which held firm above the one-week high of 1.2660 against the US dollar during Thursday’s early New York session, the Nigerian naira continued its ascent against the pound, illustrating a robust performance amidst global currency fluctuations.
Economic indicators hint at a promising outlook for both currencies. In the United Kingdom, manufacturing PMI unexpectedly rose in March, following a prolonged decline spanning 20 consecutive months. This uptick in manufacturing activity, coupled with record-high business optimism since April 2023, reflects a positive sentiment among UK manufacturers, with a substantial majority anticipating increased production levels in the coming year.
Concurrently, the pace of British home price growth surged to 1.6% in March, marking the fastest rate since December 2022. Despite historically high interest rates, the real estate market in the UK appears resilient, buoyed by strong demand.
However, challenges loom on the horizon for the British pound. Market expectations regarding potential rate cuts by the Bank of England (BoE) could influence its value in the mid-term. With UK inflation showing signs of steady decline, investors anticipate that the BoE may initiate a rate-cutting cycle as early as June. Governor Andrew Bailey of the Bank of England has suggested that two or three rate cuts could be reasonable throughout the year.
Moreover, a recent analysis by S&P Global Rating underscores the long-term challenges facing the British pound. The report warns that the next British government must exercise caution to prevent further damage to the nation’s already fragile credit rating, given the substantial strain on public finances.
Meanwhile, in Nigeria, efforts by the Central Bank to bolster the naira have yielded positive results. The recent strengthening of the naira in the parallel market is attributed to reduced speculation, as foreign exchange hoarders offload their holdings in response to the Central Bank’s FX policy measures.
These measures include the clearance of all verified foreign exchange backlogs, alongside reforms such as the raising of the benchmark interest rate and the easing of restrictions on interbank transactions.
Looking ahead, market analysts anticipate that the naira will sustain its upward trajectory, fueled by ongoing efforts to absorb liquidity and attract capital through increased Open Market Operations (OMO) sales.
In conclusion, while both the Nigerian naira and the British pound navigate their respective economic landscapes, their performance reflects broader shifts in global currency markets. As uncertainties persist, stakeholders remain vigilant, poised to adapt to evolving market dynamics.
Credit: Nairametrics (Text Excluding Headline)