The naira weakened further on Friday, closing at N1,393 per dollar, its lowest level since January 29 this year, as pressure in Nigeria’s foreign exchange market persisted.

Data from the Central Bank of Nigeria (CBN) showed the local currency depreciated from N1,387/$ recorded on Thursday, reflecting renewed demand for the U.S. dollar and limited foreign exchange (FX) supply in the market.

During Friday’s trading session, the naira moved within a relatively tight range, fluctuating between N1,404/$ and N1,398/$ before settling at N1,393/$ at the close of trading in the Nigerian Foreign Exchange Market (NFEM). The movement highlights the continued volatility in the currency market despite policy efforts aimed at stabilising the exchange rate.

The latest depreciation pushes the naira back to levels last seen in late January, when the currency traded close to N1,394 per dollar amid heightened uncertainty in the FX market.

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Analysts say the naira remains under pressure due to strong demand for dollars by importers, constrained FX inflows and broader global uncertainties that are influencing investor sentiment toward emerging and frontier markets.

“The currency is being affected by the Middle East crisis as investors move into safe-haven or dollar-denominated assets,” said a Fixed-Income Assets Analyst, Mr Nelson Adetokunbo.

“Investors prefer to hold dollar-denominated assets as the U.S. currency strengthens against other major currencies. In simple terms, the dollar is currently more favourable than the naira for investors,” he said.

He added that foreign exchange liquidity remains tight, particularly in the official market, making it difficult for some market participants to access dollars through formal channels.

“However, there is low liquidity in the market at the moment, especially at the official market. As a result, many participants are moving to the parallel market in search of dollars,” Adetokunbo explained.

At the parallel market, the naira traded between N1,420 and N1,430 per dollar, compared with N1,418 quoted on Thursday, indicating a depreciation of between N2 and N12 depending on the segment of the market. Analysts say the widening gap between the official and parallel market rates reflects persistent supply constraints and sustained demand for foreign currency.

What stronger dollar means for naira assets

Economy Post had recently explained that any renewed strength of the U.S. dollar had direct and indirect consequences for naira-denominated assets, including government bonds, treasury bills, equities, and real estate. When the greenback appreciates globally, it reshapes capital flows, risk appetite, and valuation dynamics across emerging markets like Nigeria.

A stronger dollar makes U.S. assets more attractive relative to emerging market instruments. Higher dollar yields encourage foreign investors to rebalance away from naira assets into U.S. treasuries and dollar-denominated securities. This typically leads to portfolio outflows from Nigeria’s bond and equity markets, reducing FX inflows and weakening market liquidity.

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Also, naira-denominated bonds and treasury bills face increased sell pressure when the dollar strengthens, as global investors demand higher risk premiums. To retain and attract investors, Nigerian authorities may be forced to raise domestic interest rates, pushing up yields. While this may benefit new buyers, it causes capital losses for existing bondholders as prices fall. “This could be one of the reasons why the Central Bank of Nigeria (CBN) is cautious about reducing the interest rates as quickly as people would want. They feel that doing so harpharzadly will result in portfolio outflows, especially if the dollar remains much stronger,” said a Lagos-based fixed income analyst, Mr Kayode Otufodunrin. “You need to balance the need to attract foreign portfolio investments and the need for businesses to access credit for expansion.”

Similarly, a stronger dollar often triggers risk-off sentiment in frontier markets. Foreign investors tend to trim exposure to Nigerian stocks, particularly in banking, telecoms, and consumer goods. As foreign participation declines, the Nigerian Exchange (NGX) may experience lower turnover and heightened volatility. Share prices can weaken, especially for firms with high foreign currency liabilities.

Moreover, when the naira weakens alongside a stronger dollar, naira assets lose value in dollar terms. Even if local market prices appear stable, foreign investors see declining real returns once converted back into dollars. This discourages fresh foreign capital and weighs on long-term portfolio investment.