The naira maintained its upward momentum across Nigeria’s foreign exchange (FX) market the past week despite renewed strength in the US dollar, highlighting the growing influence of improved domestic liquidity, stronger external reserves and sustained investor confidence in the Central Bank of Nigeria’s (CBN) foreign exchange reforms.
- +Why naira is holding firm despite stronger US dollar
Ordinarily, a strengthening dollar exerts pressure on emerging market currencies, including the naira, by making dollar-denominated assets more attractive to global investors and increasing the cost of imports.
Ordinarily, a strengthening dollar exerts pressure on emerging market currencies, including the naira, by making dollar-denominated assets more attractive to global investors and increasing the cost of imports. However, Nigeria’s foreign exchange market has proved relatively resilient, supported by increased dollar liquidity and improved market confidence.
The resilience of the naira is particularly noteworthy because it comes at a time when the US dollar is strengthening against most major and emerging market currencies.
J.P. Morgan Global Research recently upgraded its outlook for the US dollar, citing expectations of a more hawkish US Federal Reserve and continued resilience in the American labour market.
The dollar index, which measures the performance of the greenback against a basket of major global currencies, traded around 101.3 on Friday, hovering near a three-week high after renewed tariff measures announced by US President Donald Trump heightened concerns about global trade tensions, according to Trading Economics.
Analysts also noted that geopolitical uncertainty, particularly developments involving the United States and Iran, has increased demand for safe-haven assets such as the US dollar. They believe the dollar could remain strong until tensions ease and energy prices moderate.
Although a stronger dollar typically weakens emerging market currencies, several domestic factors have continued to support the naira.
One of the biggest drivers has been the sharp increase in foreign exchange market liquidity.
Available data showed that total turnover at the NFEM window surged by 119.9 percent to $4.2 billion on Thursday from $2.01 billion recorded on Monday. This indicates a significant increase in the volume of foreign exchange transactions taking place in the official market.
The number of deals also increased by 10.86 percent during the week, rising from 1,216 transactions on Monday to 1,348 deals by Thursday.
Similarly, activity in the interbank segment strengthened considerably.
Total turnover rose by 51.3 percent to $1.43 billion on Friday from $944.16 million at the beginning of the week, while the number of transactions increased from 562 to 585 deals.
Higher turnover generally signals improved market liquidity, making it easier for businesses, banks and investors to buy and sell foreign exchange without causing significant volatility in exchange rates.
Another factor supporting the naira is Nigeria’s strong external reserve position.
External reserves, which provide the CBN with the capacity to intervene in the foreign exchange market and meet the country’s external obligations, remained above the $52 billion mark during the week.
CBN data showed reserves stood at $52.02 billion as of July 23, 2026, compared with $52.03 billion recorded the previous day.
Speaking after the Monetary Policy Committee meeting earlier in the week, Olayemi Cardoso, governor of the CBN, disclosed that gross external reserves had increased to $52.52 billion as of July 17, 2026, from $50.47 billion at the end of May.
According to him, the increase was driven mainly by receipts from crude oil-related taxes and third-party inflows.
The reserves now provide approximately 11 months of import cover, significantly above the international benchmark of three months.
For investors, this represents an important indicator of macroeconomic strength because higher reserves enhance the CBN’s ability to supply foreign exchange during periods of market stress, support exchange-rate stability and boost confidence in Nigeria’s external position.
Stable exchange rates also improve earnings visibility for manufacturers, importers and foreign investors whose returns are directly affected by currency fluctuations.
Manpreet Gill, chief investment officer for Africa, Middle East and Europe at Standard Chartered, said the recent appreciation of the US dollar has been driven largely by temporary factors.
According to him, geopolitical uncertainty and expectations surrounding US monetary policy have been the primary drivers of recent dollar strength.
“Our view is that both of those factors should gradually fade. Assuming inflation continues to moderate, and there are no significant new shocks, we expect US bond yields to ease over time, reducing support for the dollar,” Gill said.
He explained that for emerging markets such as Nigeria, prolonged dollar strength can place pressure on local currencies, discourage capital inflows and increase imported inflation by making foreign goods more expensive.
Conversely, a weaker or more stable US dollar would create a more favourable environment for the naira by improving investor appetite for emerging market assets, encouraging capital inflows and helping reduce inflationary pressures through lower import costs.
While domestic conditions have continued to support the naira, analysts note that Nigeria’s foreign exchange outlook will still depend on developments both at home and abroad.
Globally, investors will be watching the direction of US monetary policy, geopolitical developments in the Middle East, global oil prices and movements in the US dollar.
Domestically, the sustainability of the CBN’s foreign exchange reforms, the continued growth in external reserves, improved market liquidity and disciplined macroeconomic policies will remain critical to maintaining confidence in the naira.
For now, the combination of stronger foreign exchange turnover, healthy external reserves and improved liquidity has enabled the naira to withstand the pressure from a strengthening US dollar.
If these domestic fundamentals remain intact and external conditions become more supportive, analysts believe the naira could continue to trade within a relatively stable range while attracting stronger investor confidence and supporting broader macroeconomic stability.
