The Nigerian naira remained volatile on Tuesday in the parallel foreign exchange market, trading around ₦2,177 per British pound. This price movement continues a month-long consolidation pattern, where the naira has fluctuated between ₦2,100 and ₦2,180 per pound throughout April. This trend is unfolding amid a rising global appetite for the British pound and growing pressure on the naira due to structural economic weaknesses and currency market imbalances.
Foreign Demand Drives Sterling Strength
Globally, the British pound has seen increased demand as investors seek alternatives to the U.S. dollar amid ongoing geopolitical risks. Analysts note that these conditions are contributing to the strain on currencies like the naira, especially in unofficial markets. In Nigeria, the parallel exchange rate—driven largely by demand for foreign currencies for trade, education, and remittances—remains a bellwether of broader economic sentiment and access to foreign exchange.
UBS Group AG, one of the world’s leading financial institutions, recently upgraded its projection for the British pound, citing positive structural indicators and a weakening U.S. dollar. According to a note released by the bank’s Chief Investment Office, UBS now expects the pound to hit $1.39 against the U.S. dollar by the end of Q1 2026. This forecast marks a notable shift in market confidence toward sterling.
Nigeria-UK Trade and Migration Links Impact Currency Dynamics
The British pound holds significant relevance to Nigeria’s economic ecosystem. Nigeria ranks 38th among the United Kingdom’s trade partners, while the UK is Nigeria’s second-largest partner in terms of bilateral trade volumes. This strong relationship contributes to sustained demand for the pound, especially in unofficial markets, where many individuals and businesses transact to meet their foreign exchange needs.
Additionally, the UK remains the top destination for Nigerian emigrants and students due to a blend of favorable factors such as shared history, absence of language barriers, closer time zones, and easier travel compared to destinations like the United States or Canada. These factors have ensured a continuous flow of remittances from the UK to Nigeria.
According to Central Bank of Nigeria (CBN) data, the UK accounts for about 50% of all remittances sent to Nigeria. Remittance inflows are expected to grow by 9% in 2024, reaching $21 billion. These financial inflows serve as a crucial buffer for the country’s balance of payments and are vital to currency stability.
Parallel Market Pressures Amid Infrastructure Gaps
Despite robust remittance inflows, the naira has continued to face challenges in the parallel market. Analysts believe that without significant improvements in liquidity and formal access to forex, the pressures on the naira in unofficial markets will persist. This has created a feedback loop where limited access in the formal market forces more individuals to the parallel market, putting further pressure on the currency.
In April, as the pound gained globally, local demand also surged, particularly among students, importers, and remittance receivers, further widening the gap between official and unofficial rates.
UBS: Pound’s Strength Anchored by Policy and Market Confidence
UBS analysts explained that the pound, while not officially classified as a “safe-haven” currency, has begun to display haven-like characteristics due to its liquidity and use in carry trades. The Swiss bank also highlighted the pound’s resilience, pointing to Britain’s stable monetary policy, its exclusion from punitive tariffs during Donald Trump’s presidency, and its diplomatic restraint in recent global disputes.
Interestingly, UBS noted that while the pound still experiences more volatility than the euro, it has performed well in recent weeks—especially during a period when investors sold off the U.S. dollar due to ambiguity over future U.S.-China trade negotiations and American policy direction.
The bank also warned that despite these gains, the UK’s economy remains heavily reliant on global trade and therefore vulnerable in the event of a worldwide slowdown or recession.
Dollar’s Decline and Uncertainty in U.S.-China Trade Talks
Meanwhile, the U.S. dollar struggled to recover from a sharp selloff earlier in the week. This came as Treasury Secretary Scott Bessent asserted that China must take the initiative to resolve ongoing tariff issues. Although former President Donald Trump claimed progress in recent discussions, no concrete breakthroughs have been confirmed.
Amid the uncertainty, investors have fled to traditional safe-haven assets, including the Japanese yen and Swiss franc, while avoiding the dollar. The euro, although down 0.15% on Tuesday at $1.14, continues to post its best monthly performance against the greenback in nearly 15 years as investment interest in European assets rises.
The British pound has also benefited from this shift, hovering at a three-year high around $1.34 in the global market. As such, the strength of the pound has placed additional strain on the naira, especially as many Nigerians require sterling to fund overseas education, healthcare, and migration expenses.
Outlook: Cautious Optimism or Prolonged Instability?
The naira’s medium-term prospects remain closely tied to external and domestic developments. While a projected rise in remittances could provide temporary relief, the real game changer would be a surge in foreign direct investment and stronger macroeconomic reforms that stabilize the formal foreign exchange market.
Looking ahead, investors and policymakers are closely watching the Nigerian government’s economic agenda, including its foreign exchange reforms, trade policies, and CBN actions. Markets are also awaiting the U.S. jobs report and first-quarter GDP data—figures that could significantly influence dollar strength and global risk sentiment in the coming days.
Until then, the naira is likely to remain in its current holding pattern in the parallel market, caught between rising external pressures and internal systemic constraints.
