Naira Faces U.S. Dollar Pressure Amid Strong Employment Data

The Nigerian naira remained relatively stable during the first trading session of the week, despite ongoing pressure from the dollar’s strength and stronger-than-expected U.S. economic data.

Over the weekend, the naira was trading within the N1650-1660/$ range in the unofficial market in major Nigerian cities.

Last week, the naira weakened slightly against the U.S. dollar in the official foreign exchange market. Data from FMDQ showed that the Nigerian currency dropped to N1,543 against the dollar on Friday, down from N1,541.2/$ on Thursday.

The recent surge in the value of the U.S. dollar has raised concerns across Sub-Saharan Africa, particularly in frontier markets like Nigeria, which heavily depend on imports. Stronger-than-expected U.S. payroll data has reinforced expectations that interest rates in the U.S. will decline more slowly this year.

Nigeria’s fiscal challenges could worsen as higher U.S. yields make it more costly to service the country’s dollar-denominated debt. The popular U.S. 10-year Treasury note reached 4.73% last Wednesday, its highest level since April 25. This surge came amid reports suggesting that former President Trump considered declaring a national economic emergency to justify imposing universal tariffs on both allies and adversaries.

While Trump’s deregulation and tax cuts are expected to drive economic growth, there are concerns that the unconfirmed tariff actions could lead to higher inflation in the U.S. A weak naira combined with rising debt-servicing costs could further strain Nigeria’s government finances, limiting fiscal policy options.

Persistently high U.S. exchange rates could worsen dollar shortages in the foreign exchange market, contributing to greater naira volatility. This could also fuel inflation, raising the cost of imports and raw materials, which would further burden consumers and businesses already grappling with rising expenses.

Strong Payroll Data Pushes Dollar to a 24-Month High

The U.S. dollar began Monday’s trading session strong after reaching its highest levels since November 2022.

December’s nonfarm payrolls data surpassed expectations and was the key factor driving the greenback’s strength. The U.S. labor market remains robust, and the jobs data raised concerns that the Federal Reserve might be even more motivated to gradually lower interest rates this year, due to the strong labor market and persistent inflation.

The dollar maintained its upward trend following the release of the Fed’s minutes last week. Policymakers acknowledged that inflation is likely to continue slowing this year, although they expressed concern that price pressures could remain sticky as they considered the possible impact of Trump’s policies.

The upcoming release of the consumer price index inflation data this Wednesday is expected to be closely scrutinized for additional clues about interest rate decisions. After the Fed’s December meeting minutes revealed increasing concerns about high inflation and a strong labor market, some Fed officials are also scheduled to speak this week.

Analysts at Goldman Sachs, who had previously predicted three interest rate cuts in 2025, now expect only two rate cuts this year.