The United States dollar surged to its highest level in 12 months on Thursday, piling fresh pressure on the Nigerian naira, which slipped in the official foreign exchange market after enjoying a brief two-day rally.
Greenback Strengthens on Fed's Hawkish Stance
The greenback strengthened sharply after the US Federal Reserve left interest rates unchanged but signalled a tougher stance on inflation, raising expectations that borrowing costs could increase later this year. The development triggered renewed investor demand for US assets and boosted the dollar against major global currencies.
At the official market, the naira depreciated by N4 to close at N1,363 per dollar on Thursday, June 18, 2026, according to data from the Central Bank of Nigeria (CBN). The decline reversed the gains recorded over the previous two trading sessions and reignited concerns about the local currency's stability.
Fed's Hawkish Tone Fuels Dollar Rally
The Federal Reserve maintained interest rates within the 3.50 per cent to 3.75 per cent range but adopted a more hawkish outlook under its new chairman, Kevin Warsh. Updated projections released by the US central bank showed that nearly half of policymakers now expect at least one rate increase this year as inflationary pressures remain persistent. Markets responded swiftly, with Fed funds futures fully pricing in a rate hike by October.
Stronger-than-expected US retail sales figures also reinforced the view that the world's largest economy remains resilient, encouraging investors to shift more funds into dollar-denominated assets. The result was a broad-based rally for the greenback.
The US Dollar Index, which measures the currency against a basket of major rivals, climbed 0.36 per cent to 100.71, its highest level since May 2025. The index had already recorded its biggest single-day gain in more than three months during the previous trading session.
"The hawkish update from the Federal Reserve raises the risk of a significant bullish breakout for the US dollar," said Lee Hardman, Senior Currency Analyst at MUFG. He added that rising expectations for higher US interest rates had outweighed concerns surrounding geopolitical developments in the Middle East.
Euro, Pound and Yen Retreat
The dollar's strength was felt across global currency markets. The euro slipped 0.3 per cent to $1.146, while the British pound fell 0.54 per cent to $1.322, with both currencies trading at their weakest levels in more than two months. The Japanese yen also weakened sharply to 160.90 per dollar, its lowest point since July 2024, erasing gains made after earlier interventions by Japanese authorities. The renewed weakness prompted officials in Japan to reiterate their readiness to step into the market again if necessary.
IMF Says Naira is Undervalued
The naira's latest decline comes despite recent remarks by the International Monetary Fund (IMF), which argued that the Nigerian currency is trading below its fair value. According to the IMF, the naira's estimated fair value stands at around N1,100 per dollar, suggesting that the currency is stronger than current market prices indicate. The Fund noted that ongoing reforms and market adjustments have pushed the naira below its underlying value against the US dollar, even as Nigeria continues efforts to stabilise its foreign exchange market.
Oil Price Drop Fails to Slow Dollar Momentum
Meanwhile, oil prices declined after the United States and Iran reached a temporary agreement aimed at easing tensions in the Middle East. The deal includes plans to reopen the Strait of Hormuz to unrestricted shipping and allows exemptions for Iranian oil exports from US sanctions. Ordinarily, lower oil prices and easing geopolitical tensions could weaken demand for the dollar as a safe-haven asset. However, analysts say expectations of tighter US monetary policy remain the dominant force driving currency markets.
"Until there is certainty that the Strait of Hormuz can be reopened without restrictions, sentiment favouring the dollar is likely to remain strong, especially given the Federal Reserve's increasingly hawkish stance," said Kimi Tong, Global Markets and FX Strategist at Everbright Securities International.
For Nigeria, the stronger dollar presents another challenge as authorities continue efforts to stabilise the naira amid shifting global economic conditions and persistent pressure on foreign exchange demand.
Black Market Dollar Rate Jumps
Legit.ng earlier reported that Nigeria's foreign exchange market is once again showing signs of fragmentation, as persistent demand for dollars outside official channels continues to fuel activity in the parallel market. Checks by Daily Sun revealed that at the start of trading on Monday, the naira exchanged at N1,395 per dollar for buying and N1,400 per dollar for selling in the black market. The rates reflect sustained demand for foreign currency among individuals and businesses unable to access dollars through the official market promptly.
