The growing chasm between the official and parallel market exchange rates in Nigeria has sparked apprehension over the success of recent exchange rate unification efforts, as the disparity continues to expand.

On Thursday afternoon, the Nigerian naira plunged to an unprecedented low of N950 to the US dollar on the parallel market, a stark contrast to the N897 it commanded the previous day. Meanwhile, official data revealed that the naira closed at N782.38 per $1 at the official window.

The current N167.62/$1 discrepancy between the two rates marks one of the widest gaps since the naira’s unification on June 14th, 2023.

The naira’s recent downward trajectory on the parallel market saw it weaken by 4.39 percent within the first ten days of August. This follows an 11.5 percent depreciation observed in July 2023.

Contributing to the currency’s decline, Nigerian banks struggled to meet surging demand for dollars, driving buyers to seek alternatives in the parallel market. Additionally, the naira is under pressure as many affluent individuals opt to preserve value by using the US dollar.

Wale Edun, a recently screened Ministerial nominee, expressed concern over the market’s volatility, asserting that prevailing black market exchange rates do not align with economic fundamentals. He suggested that a more appropriate naira-to-dollar exchange rate would hover around 700.

Foreign exchange traders are currently closely monitoring US inflation data, with expectations of a 4.8 percent year-on-year growth in core US consumer prices for July. While the annual rate has shown recent declines, projections indicate a rebound from 3.0 percent to 3.3 percent. Monthly growth, however, is anticipated to remain steady at 0.2 percent.

The US inflation data’s release could potentially influence a shift in the Federal Reserve’s monetary tightening strategy, leading to a short-term weakening of the US dollar. Despite recent debt downgrades by US rating agencies, a research report from JP Morgan suggests that the US dollar’s upward trend may persist due to favorable seasonal patterns, backed by resilient US data and a declining central bank balance in the G4 countries.

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