Nigeria’s naira hovered just beneath the critical N1,600/$ resistance level in the unofficial exchange market early Tuesday, trading within the N1,587 to N1,590 band. This shift came following a slowdown in trading volumes across major commercial centers, attributed to the recently concluded public holidays that temporarily dampened business activity.

However, despite this short-term lull, the naira’s prospects show signs of resilience, supported by a more optimistic outlook from Nigerian businesses, recent central bank data, and narrowing gaps between official and parallel market rates.

Positive Business Sentiment Fuels Naira Confidence

According to newly released data from the Central Bank of Nigeria (CBN), business sentiment in the country has shown remarkable positivity. Analysts noted that the May data reflected high levels of confidence among firms across key sectors, including agriculture, manufacturing, and services. Agriculture, in particular, received the highest confidence index, underscoring the sector’s growing role in Nigeria’s economic resilience.

Business leaders expressed confidence not only in the local economy but also in the naira’s trajectory, anticipating modest appreciation in the months ahead. Survey respondents from factories, retail shops, and service industries outlined ambitious plans for expansion and hiring through the first half of 2025. Across various commentaries, optimism remained a consistent theme, a tone not often found during prior periods of economic uncertainty.

Bismarck Rewane: Naira Still Undervalued, Likely to Stabilize

Economist and CEO of Financial Derivatives Company, Bismarck Rewane, provided insight into the currency’s future during the Lagos Business School’s June economic breakfast briefing. According to him, the naira is currently undervalued by approximately 26.82% when compared to traditional valuation metrics.

Rewane projected that the naira would likely fluctuate between N1,600 and N1,650 to the dollar over the coming weeks, maintaining relative stability within this band. He also noted that the dollar’s own depreciation — down by 8.7% this year — may help ease the pressure on the naira, cushioning some of the negative effects typically felt in the FX market.

One of the more striking developments he highlighted is the significantly narrowed spread between the official and parallel market rates. Currently within a slim 1–3% margin, the difference between both rates has shrunk dramatically from previous gaps of 50–70%, signaling a more synchronized and transparent FX environment. With the margin now hovering around N50, Rewane concluded that the naira is better priced and that policy corrections appear to be paying off.

Stability in the Global FX Market Supports Local Sentiment

Globally, the U.S. dollar has remained relatively steady, although sentiment appears mixed as traders brace for potential economic revelations. In the London trading session, the greenback saw minimal movement against major currencies, with the Dollar Index holding at 98.99 — slightly above last week’s six-week low.

Markets remain cautious ahead of the U.S. consumer price index (CPI) release scheduled for Wednesday, a key metric that may reveal the impact of trade tensions and tariff policies on American inflation. Analysts expect this data to play a crucial role in shaping short-term dollar movement, especially as investors weigh risks tied to persistent inflation and uncertain Federal Reserve timing.

Further complicating the outlook, ongoing diplomatic discussions between the United States and China are drawing close scrutiny. Senior envoys from both nations entered their second day of talks in London, aiming to ease geopolitical and trade tensions that have rattled global markets. However, unlike the Geneva round of talks — which previously delivered tangible gains like tariff relief — the current negotiations are centered around more complex strategic issues, such as semiconductor export limits and restrictions on educational visas.

Market Reactions to U.S. Political and Economic Uncertainty

Beyond economic indicators, global sentiment toward the U.S. dollar is increasingly shaped by political turbulence. Donald Trump’s final presidential term has created a layer of uncertainty in FX markets, with traders becoming more risk-averse toward the greenback. According to UBS economist Dean Turner, investors are slowly reducing their dollar exposure as they adjust to an evolving risk landscape.

In his recent note, Turner warned that Washington — traditionally seen as a bastion of financial stability — now feels more like the epicenter of global uncertainty. This perception, he argued, is driving shifts in currency allocations and pushing capital toward more diversified holdings. However, he stopped short of recommending a complete exit from dollar-denominated assets, citing the U.S. market’s unparalleled depth and liquidity as a major anchor for global capital.

Despite those reassurances, Turner acknowledged that ongoing political dysfunction, volatile trade relationships, and an expanding fiscal deficit could lead to more dollar weakness in the months ahead. Recent movements in global markets seem to support that warning. Treasury yields have risen, European equities have found momentum, and currencies like the British pound have displayed wider-than-normal trading ranges — from 1.25 down to 1.20 before rebounding toward 1.35.

Looking Ahead: Can the Naira Maintain Its Momentum?

Back in Nigeria, the naira’s ability to hold beneath the N1,600 resistance point represents more than a technical victory — it reflects a broader stabilization effort that appears to be gaining traction. Improvements in monetary policy execution, a more predictable FX environment, and growing domestic business confidence are now converging to support a more resilient local currency.

Nonetheless, challenges remain. External risks, such as a sudden dollar rally, inflation shocks, or geopolitical escalations, could still impact the naira. Domestically, inflation pressures, fiscal constraints, and structural inefficiencies continue to pose long-term threats.

But for now, the prevailing sentiment appears cautiously hopeful. As Nigeria’s business leaders double down on expansion plans and policymakers continue to foster transparency in the FX market, the naira’s recent stability might not be a mere fluke — it could signal a new chapter in Nigeria’s monetary journey,