Forex in Five: Trade thaws, dollar drifts, and FX moves in Africa

Trade tensions ease as a global recalibration begins 

The global tariff landscape remains a key theme, unleashing significant upheaval in 2025, but the tone is finally shifting. Optimism is emerging as the U.S. and China appear to be stepping back from the brink of an all-out trade war. While far from resolved, the mitigation of further escalations has buoyed risk sentiment. 

On the European front, the UK’s trade deal with the U.S. – while not transformative – is a symbolic step in the right direction. Parallel discussions with the EU are underway, and although gains may be marginal, they reinforce a broader trend: global trade isn’t unravelling – it’s recalibrating.

Dollar softens despite FEDs’ measured stance

Currency markets are reflecting this cautious optimism. The U.S. dollar remains under pressure, even as FED chair Jay Powell signaled that significant rate cuts may be deferred into 2025.

While some market participants anticipate up to 100 basis points of easing this year, the Federal Reserve appears to be in wait-and-see mode. 

As a result:

• The euro has rallied.

• The British pound is holding gains.

• Dollar softness persists across most G10 pairs.

Talks of EUR/USD reaching 1.20 by year-end may be overblown, but sentiment clearly favours a weaker greenback for now.

Central Bank of Nigeria intervention ramps up, but structural gaps remain

In Nigeria, the Central Bank (CBN) made its presence felt this week with a substantial intervention in the FX market. Over $100-120 million was supplied to the NAFEM window at a discount of around 2%, the largest injection in recent months.

However, this move only briefly narrowed the gap between official and parallel market rates, which has since widened to 1-2%, after tracking closely for several months.

Monetary policy status quo

• The Monetary Policy Committee (MPC) held rates steady

• Governor Cardoso emphasized the need for fiscal stimulus to complement monetary efforts and drive sustainable inflows.

While inflation continues to ease (now hovering in the low 20% range), reliance on OMO instruments with elevated yields raises questions about sustainability. The focus is now shifting toward attracting long-term FX via infrastructure investment – a pivot that will require coordinated fiscal action.

A stable Kenyan Shilling held by strong reserves, and strategic partnerships

In Kenya, the CBK remains actively engaged in managing the shilling, keeping it stable within the KES 120-130 range – a corridor it has held for 18+ months.  

What’s supporting this stability?

For one, FX reserves have climbed to ~$10 billion, now covering 5–6 months of imports. There are also strategic funding deals with the UAE and China playing a key role – though these flows may not stem from traditional foreign direct investors.

A new IMF program is also on the horizon, but still in early stages. It will likely require significant fiscal reforms. For now, Kenya appears equipped to maintain exchange rate stability pending border policy shifts.

Euro sensitivity creeps in the CFA Zone: 

Recent euro-dollar volatility has started to produce a mild pass-through effect, weakening both Euro-XAF and Euro-XOF positions.

While movements remain within a 2-6% premium range, any breakouts would suggest a fundamental shift in how these currencies respond to euro strength. It’s a space we’re watching closely, as the balance between monetary stability and external pressures tightens.

In conclusion

Markets are navigating a more constructive – albeit still complex –  macro environment. As trade tensions ease and monetary divergence plays out, we’re seeing renewed interest in non-dollar currencies and frontier market opportunities. 

At Verto, we continue to monitor these shifts closely to help our clients stay ahead of the curve in both spot FX and cross-border payment solutions. 

Stay tuned for our next "Forex in Five" for more in-depth analysis.