The naira began Thursday’s session at the lower end of its range versus the British pound sterling and quickly broke through the N2,000 barrier. Meanwhile, the pound surged to a four-month high against the US dollar as data indicated the UK economy expanded faster than anticipated in May, lessening the likelihood of an August rate cut.
The Office for National Statistics released flash data on Thursday, revealing that the UK economy grew by 0.4% in May. This announcement propelled the value of the British pound to a four-month high against the US dollar.
In the black market, the pound sterling traded at N2,020 against the naira, despite improved conditions in Nigeria’s FX assets held by the Central Bank of Nigeria (CBN). This depreciation of the naira comes as Nigeria’s reserves reached $35.05 billion as of July 8, 2024, the highest under President Tinubu’s administration.
The naira’s decline in the Nigerian Autonomous Foreign Exchange Market (NAFEM) coincided with an increase in price volatility and a widening exchange rate disparity. The Nigerian currency depreciated by N29, trading at N1,561/$1 late Wednesday, down from N1,532/$1 on Tuesday, according to NAFEM data.
The British economy rebounded strongly from a temporary recession in the first quarter but showed stagnation in April. In May, increased output in the construction and production sectors, up 1.9% and 0.2% respectively, supported growth as the UK’s largest services sector continued to expand at a rate of 0.3%.
According to LSEG statistics, the British pound rose 0.05% against the US dollar to $1.2859 by 7:17 a.m. in London, marking the highest level since March 8, 2024. As Prime Minister Keir Starmer begins his first week in office, the newly elected Labour Party is expected to oversee a robust economy.
A substantial parliamentary majority and business-friendly rhetoric from the Labour Party have led observers to view the administration as favorable to UK-based assets. Markets anticipate that the Labour cabinet will prioritize high-impact, low-cost policies to release much-needed private investment, aligning with recent pro-growth pledges amid stretched public finances.
Last week, Finance Minister Rachel Reeves announced plans to change planning regulations, lift the moratorium on new onshore wind farms in England, and impose mandatory house-building objectives. She also unveiled the establishment of a £7.3 billion national wealth fund to attract private sector funding for infrastructure projects in the UK.
Currency traders are monitoring for potential exhaustion in the pound’s rally in the upcoming weeks. If the price corrects lower, rallies should be limited to below $1.2857. A close below the weekly open is needed to initiate a significant fall.
Initial support is provided by the 2024 yearly open at $1.2731 against the haven currency and the swing low from February 2019 at $1.2773. Pullbacks must be limited to this level for the monthly climb to be sustained. Now, broader bullish invalidation is raised to $1.2664, the open for July.
