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The Nigerian currency appreciated strongly at the official market while the U.S. dollar index drifted lower in holiday-thinned trade as currency traders awaited inflation data from the world’s largest economy. 

 

The naira strengthened to 1,339.33/$, up by about 10% at the first trading session of the week from Friday’s 1,482.81/$. N1,501/$1 was the intraday high and N1,310/$1 was the low for the day, indicating a lean spread of N191 against the greenback. 

The Nigerian Autonomous Foreign Exchange Market data shows a 67.50 percent reduction in daily trade from $556.25 million on Friday to $180.80 million on Monday. Following weeks of decline, the naira closed flat against the dollar late last week, finishing the week on the official foreign exchange market marginally stronger. 

In the same vein, the value of the naira fell against the British pound, trading at N1,920<£1, down from N1,900/£1 

The Canadian dollar and the naira closed at N1,200| CA$1, the same level as it had traded at during the previous trading day. 

Nigeria’s Central Bank stepped up efforts to reform the monetary and exchange rate framework with the liberalization of the foreign exchange market last year, significantly reduced the disparity between the official and parallel market rates 

The naira fell against the dollar at the parallel part of the market, trading at N1,520/$1 in contrast to the N1,510/$1 it traded the previous trading day. 

The dollar index falls as the PCE data release gets closer. 

Tuesday’s low-volume trading showed a 0.1% depreciation in the dollar index and dollar index futures due to the Memorial Day holiday.  

This week’s focus is on the PCE price index data due on Friday. The data is the preferred inflation indicator of the Federal Reserve and will probably impact on the central bank’s projected reduction in interest rates. 

Additionally, the PCE reading coincides with traders gradually pricing out expectations of a Fed rate decrease this year. In contrast to earlier, broad bets on a cut, the CME Fedwatch tool revealed that traders now anticipate a higher likelihood of a hold in September.  

This pattern coincides with a warning from multiple Fed officials that sticky inflation will prevent an early policy-easing by the central bank. Even while price pressures are predicted to have somewhat subsided by Friday’s PCE measurement, inflation is still predicted to remain significantly higher than the Fed’s 2% annual target.  

Over the past few years, the view for U.S. interest rates has largely determined currency movements. However, recent data from the greatest economy in the world has been mixed, undermining policymakers’ confidence in the scope and pace of rate decreases anticipated this year.