Naira Holds Firm Against Stronger US Dollar: What's Driving the Resilience

The naira maintained its upward momentum across Nigeria's foreign exchange market last 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 forex reforms. Ordinarily, a strengthening dollar pressures emerging market currencies by making dollar assets more attractive and raising import costs. But Nigeria's market has proved resilient.

Why the dollar is strengthening globally

JP Morgan Global Research recently upgraded its outlook for the US dollar, citing a more hawkish Federal Reserve and continued strength in the American labour market. The dollar index traded around 101.3 on Friday, near a three-week high, after renewed tariff measures by US President Donald Trump raised trade tension concerns. Analysts also noted that geopolitical uncertainty, especially involving the US and Iran, has increased demand for safe-haven assets. They believe the dollar could remain strong until tensions ease and energy prices moderate.

Why the naira is defying the trend

Domestic factors have supported the naira. Total turnover at the NFEM window surged 119.9 percent to $4.2 billion on Thursday from $2.01 billion on Monday. The number of deals rose 10.86 percent, from 1,216 to 1,348. Interbank turnover rose 51.3 percent to $1.43 billion on Friday from $944.16 million at the start of the week, with deals increasing from 562 to 585. Higher turnover signals improved liquidity, making it easier for businesses and investors to trade forex without causing volatility.

External reserves provide confidence

Nigeria's external reserves stayed above $52 billion. As of July 23, 2026, reserves stood at $52.02 billion, down slightly from $52.03 billion the previous day. CBN Governor Olayemi Cardoso said after the MPC meeting that gross reserves had risen to $52.52 billion as of July 17, 2026, from $50.47 billion at end-May, driven by crude oil-related taxes and third-party inflows. Reserves now provide about 11 months of import cover, well above the international benchmark of three months. Higher reserves boost the CBN's ability to supply forex during stress, support exchange rate stability, and improve earnings visibility for manufacturers, importers, and foreign investors.

What experts are saying

Manpreet Gill, chief investment officer for Africa, Middle East and Europe at Standard Chartered, said the recent dollar strength is driven by temporary factors like geopolitical uncertainty and US monetary policy expectations. He expects both to fade gradually. “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. Prolonged dollar strength can pressure local currencies, discourage capital inflows, and increase imported inflation. A weaker or more stable dollar would improve investor appetite for emerging market assets and help lower inflation through reduced import costs.

What investors should watch

Analysts note that Nigeria's forex outlook depends on global and domestic developments. Globally, watch US monetary policy, Middle East geopolitics, oil prices, and the dollar. Domestically, the sustainability of CBN forex reforms, continued growth in external reserves, improved liquidity, and disciplined macroeconomic policies remain critical. For now, the combination of stronger turnover, healthy reserves, and improved market confidence is keeping the naira stable.