Market News

…Dollar declines by 0.5% at NFEM

By Chinwendu Obienyi

Nigeria’s foreign-exchange (FX) market recorded a decline in weekly inflows even as the spread between official and parallel-market exchange rates tightened further, raising concerns among traders about mounting speculative activity and the sustainability of recent gains in the naira.

According to a report from Coronation Research, FX inflows through the Nigerian Foreign Exchange Market (NFEM) fell to $672.30 million last week, down from $899.20 million recorded in the previous week.

However, despite the slowdown, foreign portfolio investors (FPIs) remained the single largest source of dollar supply, accounting for 34.42 per cent (about $231.40 million) of total inflows. Non-bank corporates contributed 25.70 per cent, exporters doled out 22.47 per cent, individuals (7.56 per cent), Central Bank of Nigeria (CBN) 5.52 per cent, while other sources made the remaining 4.33 per cent.

>span class="s2">While a narrower spread typically signals stronger market confidence, analysts warn that the current convergence may be more reflective of short-term sentiment than structural improvements. The persistent presence of speculative trading and the currency’s sensitivity to shifts in dollar supply, remains a concern for policymakers and investors.

A tighter gap also raises the stakes for the CBN, which has sought to curb arbitrage opportunities and discourage speculative hoarding by boosting supply at key demand points. “We expect the naira to remain anchored below N1,500/$1, supported by improved liquidity conditions and CBN interventions,” Coronation Research said, though it cautioned that the currency remains vulnerable to pressure if inflows continue to soften.

Furthermore, the country’s external reserves offered slight comfort, rising marginally by 0.4 per cent to settle at $43.5 billion. The modest build-up reflects recent foreign-portfolio inflows into fixed-income instruments, flows that analysts say could persist, despite expectations of a potential rate cut at the upcoming Monetary Policy Committee (MPC) meeting.

FBNQuest Merchant Bank echoed this view, noting that sustained FPI participation is likely in the near term, supported by “attractive interest-rate differentials.” Still, the durability of these inflows will hinge on Nigeria’s broader macroeconomic signals, including inflation trends, fiscal policy clarity, and global risk appetite. Although, inflation fell sharply by 196 basis points (bps) to 16.05 per cent year-on-year (y/y) in October as against 18.02 per cent y/y recorded in September.

However, on a month-on-month basis, consumer price increased by 21 bps to 0.93 per cent as against 0.72 per cent recorded in September.

Hence, the naira is likely to trade within a similar band this week, with the stability largely dependent on continued CBN market support and efforts to contain speculative activity. Any escalation in demand pressure, especially from importers or opportunistic market players, could widen the gap again, exposing the currency to renewed volatility.