June 21, 2023 – The exchange rate between the Nigerian naira and the US dollar reached an unprecedented level at the official Investor & Exporter Window, reaching an intra-day high of N815/$1 on Wednesday.
This record-breaking rate represents the highest trading value for the dollar in the official market since the window’s inception in 2018, as per available records.
However, by the close of business on Wednesday, the exchange rate depreciated to N763.17/$1, marking a decline from the previous day’s rate of N756.61/$1.
Meanwhile, the gap between the black market and the official exchange rates narrowed once again on Wednesday, with the official rates closing at N763/$1. In the black market, the dollar was sold for prices ranging between N760 and N770/$1, depending on the buyers and sellers involved.
With three consecutive days of exchange rate parity, analysts believe that the official rate has taken a significant step towards achieving price discovery.
The process of price discovery involves three major phases: the transition phase, speculation and adjustment phase, and the intervention phase.
During the speculation and adjustment phase, market participants, including banks, forex traders, and institutional investors, analyze economic data, policy announcements, and other relevant factors to form expectations about future exchange rates. Based on these expectations, they may take positions in currencies, leading to fluctuations in exchange rates.
As the market becomes more accustomed to the managed float regime, speculative activity and adjustments may occur.
In the intervention phase, the central bank may intervene in the foreign exchange market to influence the exchange rate.