Naira Strengthens 1.2% in One Week as Dollar Demand Eases

The Nigerian naira recorded gains against the United States dollar in the official foreign exchange market, appreciating as it moved closer to the N1,350 per dollar threshold amid increased market activity and sustained policy support from the Central Bank of Nigeria (CBN).

The official spot rate strengthened by nearly N10 during midweek trading, with the naira settling at N1,357/$, reflecting improved demand for the local currency from both domestic and foreign market participants. The movement represents a gradual recovery trend in the FX market following earlier pressures on the currency.

Data from the market showed that the naira had opened the month at approximately N1,375.5/$ before strengthening to N1,357/$, indicating a gain of about 1.2 percent within a one-week period. The appreciation was supported by increased liquidity flows and ongoing interventions by the CBN aimed at stabilising the foreign exchange market.

Market activity also reflected improved trading volumes in the official FX window, with participants describing conditions as more responsive to policy signals. Analysts noted that price movements have increasingly been driven by active trading and market-based discovery rather than speculative positioning.

The foreign exchange market has continued to adjust to evolving monetary conditions, with increased sensitivity to daily liquidity and policy developments. Market participants have also pointed to greater participation by both corporates and individual traders, contributing to improved price discovery in the FX segment.

The Central Bank of Nigeria’s monetary stance, described as relatively tight, has continued to support the naira. High interest rates aimed at controlling inflation have increased demand for naira-denominated assets, particularly Treasury bills, thereby contributing to improved currency stability.

Market estimates indicate that over N10.53 trillion in liquidity is expected to enter the financial system in May 2026 from maturing Treasury bills and Open Market Operations (OMO). While this inflow supports liquidity conditions, analysts warned that it may also challenge the CBN’s ability to fully sterilise excess funds, potentially introducing fresh pressure on the currency.

However, the naira has continued to benefit from external factors, including relatively stable global interest rate conditions. The United States Federal Reserve’s policy rate, holding at around 3.75 percent, alongside a cautious global outlook, has limited aggressive capital outflows from emerging and frontier markets, including Nigeria.

In global markets, the US Dollar Index (DXY), which measures the dollar against a basket of six major currencies, remained stable after recent losses of nearly 50 basis points. The index traded around 98 points during the London session, reflecting broader weakness in the US currency.

Slower-than-expected economic data from the United States, including weaker manufacturing and retail sales figures, has reduced expectations for further aggressive monetary tightening by the Federal Reserve. This has contributed to downward pressure on the dollar while supporting rival currencies.

Currency markets remain focused on upcoming US economic indicators, particularly labour market data. Investors are awaiting the US jobs report, with expectations of around 60,000 new jobs and an unemployment rate of 4.3 percent. Market participants noted that stronger-than-expected job creation could support the dollar, particularly if wage growth remains elevated.

Attention is also directed toward the ADP private employment report, which is expected to provide an early indication of labour market conditions. Traders are assessing whether recent economic softness in the services sector may extend into employment data or whether the labour market will remain resilient.

Geopolitical developments have also influenced currency market sentiment. Discussions around a possible US-Iran agreement and related developments in global oil markets have contributed to easing inflation expectations and reduced demand for the US dollar as a safe-haven asset.

However, remarks from US Federal Reserve officials have maintained a cautious tone. Concerns remain that inflation has not consistently moved toward the 2 percent target, with some policymakers noting that price pressures have persisted since the onset of recent global tensions.

In the broader FX outlook, analysts expect continued volatility influenced by global monetary policy direction, domestic liquidity conditions, and fiscal developments. While short-term gains have supported the naira, medium-term pressures remain dependent on external capital flows, fiscal spending patterns, and central bank intervention capacity.

Overall, the currency market continues to reflect a balance between domestic policy support and global economic conditions, with the naira showing relative resilience amid shifting international and local financial dynamics.