The naira broke past the 2,000 level on Thursday, beginning the session at the lower end of its range versus the British pound sterling.
In the meantime, data showed that the UK economy grew more quickly than expected in May, decreasing the possibility of an August rate decrease. This led to the pound reaching a four-month high versus the US dollar.
The UK economy increased by 0.4% in May, according to flash numbers provided by the Office for National numbers on Thursday. The British pound’s value versus the US dollar shot up to a four-month high after the announcement.
In the illicit market, the value of the pound sterling relative to the local currency was N2,020, even though the CBN’s FX holdings in Nigeria were in better shape. The depreciation of the naira coincides with Nigeria’s reserves hitting a record high of $35.05 billion on July 8, 2024, during Tinubu’s presidency.
The recent rise in price volatility and the growing exchange rate gap were accompanied by the naira’s devaluation in NAFEM.
According to data from the Nigerian Autonomous Foreign Exchange Market (NAFEM), the value of the Nigerian Naira fell by N29 to trade at N1,561/$1 late on Wednesday, down from N1,532/$1 on Tuesday.
The pound gains value due to the robust British economy
In the first quarter, the British economy recovered well from a brief recession, but in April, it stalled. The construction and production sectors had increases in output in May of 1.9% and 0.2%, respectively, while the UK’s largest services sector continued to grow at a rate of 0.3%.
By 7:17 a.m. in London, the British pound had risen 0.05% versus the US dollar to $1.2859, the highest level since March 8, 2024, according to LSEG records. Beginning his first week in office, Prime Minister Keir Starmer and the newly elected Labour Party are anticipated to manage a rather stable economy.
Opinion pollsters have described the administration as largely supportive of assets domiciled in the United Kingdom due to the administration’s sizable parliamentary majority and business-friendly language.
Following its recent rush of pro-growth announcements amid stretched public finances, the markets expect the Labour cabinet to prioritize high-impact, low-cost measures that, when combined, might assist in freeing up much-needed private investment.
The embargo on new onshore wind farms in England was lifted last week, and Rachel Reeves, the newly appointed Finance Minister for Labour, revealed intentions to implement obligatory house-building objectives and alter planning restrictions.
She declared on Wednesday that a £7.3 billion national wealth fund would be created to bring in private money for UK infrastructure projects.
Outlook for the British pound
In the end, traders of currencies are watching for what could be an exhaustion bottom in the coming weeks.
Rals ought to be limited at levels below $1.2857 if the price corrects lower. To start a significant decline, closing below the weekly open is necessary.
The swing low from February 2019 at $1.2773 and the 2024 yearly open at $1.2731 against the haven currency offer first support; pullbacks must be contained to this level for the monthly ascent to be sustained. Wider bullish invalidation is now raised to July’s open of $1.2664.
