The naira extended its decline against the US dollar at Nigeria’s official foreign exchange market during the week ended Friday, July 10, even as the country’s external reserves climbed to its highest level in nearly two decades, underscoring the persistent challenges facing Africa’s largest economy.
Data published by the Central Bank of Nigeria (CBN) showed the local currency closed at N1,381.70 per US dollar on Friday, compared with N1,370.00/$ a week earlier. The movement represents a weekly depreciation of N11.70, or approximately 0.85%.
The naira opened the week at N1,371/$ on Monday before weakening to N1,379/$ on Tuesday. It remained unchanged on Wednesday, slipped slightly to N1,379.25/$ on Thursday, and ended the week at its weakest level on Friday, extending losses across four of the five trading sessions.
The currency’s decline came despite a further improvement in Nigeria’s foreign exchange reserves. CBN figures showed gross external reserves rose to $51.74 billion as of July 9, up $217.7 million from $51.52 billion recorded a week earlier. The reserve level is the highest in roughly 17 years and reflects continued foreign currency inflows into the economy.
Ordinarily, stronger reserves improve a country’s capacity to meet external obligations, support imports and, when necessary, provide liquidity to the foreign exchange market. However, the latest market performance suggests that reserve growth alone may not be sufficient to strengthen the naira without sustained improvements in foreign exchange supply and investor confidence.
Trading activity remained mixed throughout the week. Turnover on the Nigerian Foreign Exchange Market (NFEM) reached a weekly high of $504.67 million on Wednesday before moderating to $298.92 million on Thursday. Activity in the interbank market also fluctuated, rising from $54.18 million on Monday to $208.09 million by Wednesday before easing to $71.04 million at the end of the week.
Market analysts say the disconnect between rising reserves and the weaker exchange rate reflects broader structural pressures within Nigeria’s foreign exchange market, including strong demand for dollars from manufacturers, importers and portfolio investors.
Analysts at EBC Financial Group cautioned that the recent build-up in reserves may prove temporary if it continues to rely heavily on short-term portfolio inflows, often referred to as “hot money.” Such capital can exit quickly when global financial conditions become less favourable, potentially exposing the naira to renewed volatility.
They argued that lasting exchange rate stability will depend on attracting long-term foreign direct investment, sustaining higher crude oil production and export earnings, improving non-oil foreign exchange inflows, and maintaining policy consistency that strengthens investor confidence. Until these structural drivers improve, analysts expect the naira to remain sensitive to shifts in market liquidity and global risk sentiment.
