Naira stabilisation against dollar strengthens as liquidity improves, CBN reforms take effect and parallel market gap narrows in forex market

The naira stabilisation against dollar has shown signs of improvement in recent weeks as Nigeria’s foreign exchange market enters a phase of cautious recovery following months of volatility, with market indicators pointing to stronger liquidity and narrowing exchange rate gaps.

Also read: Naira Surges Against Dollar Amid Forex Rally

At the official market, the naira is trading around N1,380 per US dollar and approximately N1,837 per British pound sterling, while parallel market rates hover near N1,415 per dollar.

The reduced disparity between official and unofficial rates suggests improving confidence in the formal forex window and better liquidity conditions across the system.

The naira stabilisation against dollar is also reflected in shifting sentiment among traders, particularly after the pound sterling fell below the N1,900 threshold in recent sessions.

Market participants have described this as a psychological milestone that has reinforced expectations of a gradual recovery, even as short term fluctuations persist.

Central to this development are ongoing policy reforms by the Central Bank of Nigeria.

Tight monetary conditions, alongside structural adjustments in the forex market, have contributed to a more predictable trading environment.

These measures are further supported by stronger foreign reserves and efforts aimed at reducing inflationary pressures across the economy.

From a technical perspective, the naira’s performance against the pound remains below its 200 day moving average, indicating that longer term momentum may still favour gradual appreciation if current trends are sustained.

However, the pound has entered a consolidation phase, suggesting temporary stability rather than a clear directional breakout.

Key market levels continue to influence near term movements. Resistance is observed between N1,860 and N1,875 per pound, while support is seen around N1,805 to N1,807.

A sustained break in either direction could define the next phase of currency movement, with analysts closely monitoring these thresholds.

Monetary policy has also played a stabilising role.

The Central Bank of Nigeria has maintained relatively high interest rates, recently adjusting the Monetary Policy Rate to 26.5 per cent from a higher level.

This stance has helped attract capital inflows and reduce speculative demand for foreign exchange, contributing to improved market balance.

On the global stage, the Bank of England has maintained a cautious policy stance, holding its benchmark rate at 3.75 per cent.

This “hawkish hold” has supported the pound’s relative strength internationally, limiting sharper declines against emerging market currencies such as the naira.

Additional structural factors within Nigeria’s financial system have further supported the naira stabilisation against dollar.

Increased foreign exchange liquidity, rising diaspora remittances estimated at about $600 million monthly, and banking sector recapitalisation exceeding N4.6 trillion have all contributed to easing pressure on the currency.

The discontinuation of Ways and Means financing has also reduced excess liquidity in the system, helping to curb inflationary pressures and limit naira supply.

Together, these reforms have improved overall market discipline and reduced volatility.

Despite these gains, external risks remain.

Global oil price fluctuations, geopolitical tensions and shifts in investor sentiment continue to influence major currencies.

Brent crude prices above $100 per barrel have added complexity to global monetary conditions, while the US dollar maintains resilience as a safe haven asset.

In this environment, the naira stabilisation against dollar reflects a combination of domestic policy reforms and improving market fundamentals.

Also read: CBN FX Reforms Boost Reserves to $50.45bn, Naira Stability

However, sustaining this trajectory will depend on continued reforms, macroeconomic stability and the ability to navigate evolving global economic pressures.