Are inflationary pressures in Nigeria returning with a vengeance?   

21 November 2018 : The Naira has weakened against the Dollar in recent days on the parallel markets due to a combination of domestic and external factors. 

An appreciating Dollar continues to weigh on the Naira while falling Oil prices are compounding downside pressures. Investors will be keeping a very close eye on Nigeria’s inflation figures today which may confirm whether inflationary pressures are making a return. Although the inflation figures are unlikely to impact the Central Bank of Nigeria’s (CBN) monetary policy decision this week, it could play a role in what steps are taken by the CBN during Q1 of 2019.

Dollar buoyed by safe-haven flows 

Market caution has sent investors rushing to the Dollar which remains the go-to currency in times of uncertainty. 

The Dollar Index is rebounding towards the 96.85 level as of writing and is likely to extend gains on expectations of a rate hike in December. While the short- to medium-term outlook for the Greenback remains heavily bullish, the longer-term view remains open to questions. Cautious comments from Fed officials last Friday have prompted investors to re-evaluate the central bank’s hiking path beyond 2019. A scenario where trade tensions negatively impact global growth and emerging markets crumble to an appreciating Dollar could force the Fed to slow down its monetary tightening cycle.

In regards to the technical perspective, a daily close above 96.68 may inspire a move higher towards 97.00 and 97.18.

Commodity spotlight – WTI Oil 

The past two trading months have been unquestionably bearish for Oil markets due to ongoing supply and demand side concerns.

Rising global supply and worrying signs of slowing demand have been the key players behind Oil’s steep decline. Although Oil prices recently received a slight boost on speculation over OPEC cutting production by roughly 1 million to 1.4 million barrels per day in December, gains were capped by rising US Shale production and fears of global growth plateauing. With global inventories back on the rise and global supply outstripping demand, the underlying fundamentals point to further downside for Oil prices.

Currency spotlight – GBPUSD 

Where the Pound concludes this year will be heavily dictated by how markets react to ongoing Brexit developments. The persistent uncertainty over Brexit talks and political instability in Westminster has clearly haunted investor attraction towards the Pound. The technical picture points in favour of the bears with weakness below 1.2910 opening a path back towards 1.2750.

Source : Lukman Otunuga, Research Analyst at FXTM

Reporting for EasyKobo on Wednesday , 21 November 2018 in Lagos, Nigeria

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