The Brexit shockwave has sent its chills down to the Nigerian Parallel market with all parallel market dealers refusing to touch or hold on to the Pound Sterling.
Only last week it was that the GBP was racing through to N600 to £1, with the same fx dealers calling for more demand.
AbokiFX street agents witnessed customers trooping in from various locations, offloading their pounds to the parallel market and the market absorbed every single pound out there till the naira got exhausted.
What then induced the sudden loss of appetite by the parallel market dealers? – Pure Panic!!!
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AbokiFX street agents in the earlier part of the week observed parallel market traders refusing to buy the pound from customers claiming they were fully stocked and not willing to take on any additional pounds.
Some said the pounds they had bought the following week at N600 had not been sold and those that sold theirs claimed to have sold at a loss – selling at N580 and N570.
At various locations in Lagos, all abokiFX street agents reported that the parallel market traders were refusing to buy pounds from customers.
To test the validity, our street agents tried to sell to some traders on Monday and Tuesday and no one was willing to buy off them, They were able to get reluctant buyers on Wednesday who made it clear they were only interested in a very low volume (few hundreds).
Why the panic? – Brexit Shockwave
AbokiFX street agents interviewed a few of the fx traders to understand the cause of the panic and the feedback was that pound was crashing and no one knows how low it would go in the next couple of days. The traders do not want to end up with huge losses so are staying clear of the pound.
One worrisome observation was a customer who made a comment that he had only GBP pound on him and needed naira to settle some bills.
With no one willing to buy his pound off him, he said he had never seen a parallel market trader refuse to buy pounds, especially when it was trading in high demand of N600 last week.
AbokiFX research believes this panic is simply caused by the Brexit shockwave, where the USD vs GBP value in the global market has dropped from $1.3 to $1.2 within a week.
The logic here is that as the pound drops further, the demand for the pound eases and demand is switched to the stronger currency (USD) which can later be converted to the pound.
This creates an instant positive arbitrage locally and internationally. To hegde against this the traders have taken the option to drop their buying price for the pound to N550 and in most cases avoid touching or holding on to the pound.
Why has naira settled at N550 – N560 to £1?
This rate is a familiar rate with which the naira traded to the pound before the abnormal demand started two weeks ago.
The traders are more comfortable with these rates and are prepared to trade only low volumes until they reach a break even point with their existing portfolio of pounds.
This explains why the fx dealers in the parallel market have maintained a buy rate of N550 since Monday the 10th October.
The introduction of Travelex to the BDC market is yet to have an impact on the pound sterling though significant signs are seen on the US dollar.
Some fx dealers claim they would be in a better position to resume buying the pound from next week as they believe there would be a clearer direction for the pound in the market.
The risk is that direction could swing either way if the Brexit shockwave continues globally.
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