Cedi weakens amid geopolitical tensions and dollar demand
The cedi depreciated on both the interbank and retail foreign exchange markets last week.
This was due to renewed demand for the US dollar and rising geopolitical risks, particularly the escalating tensions between Israel and Iran, as well as renewed uncertainty surrounding US-China trade negotiations.
On the retail market, the cedi lost ground across major foreign currencies, depreciating by 6.37% week-on-week against the US dollar to close at a mid-rate of GH¢12.55.
It also fell by 6.06% against the British pound (GH¢16.50/GBP) and by 5.63% against the euro (GH¢14.20/EUR), reducing its year-to-date appreciation against the dollar to 23.71%.
On the interbank market, the cedi also weakened, slipping 0.97% to end the week at a mid-rate of GH¢10.35 to the dollar.
Despite these losses, the cedi showed signs of holding steady on Monday, June 16, supported by improved sentiment following Fitch Ratings’ recent upgrade of Ghana’s sovereign credit rating to B- with a stable outlook.
Analysts at Databank Research attributed last week’s depreciation largely to renewed corporate demand for foreign exchange and the seasonal US$20 million forex auction by Bulk Oil Distribution Companies (BDCs), which weakened early-week support from the Bank of Ghana.
“We believe renewed corporate FX demand on Friday [June 13], alongside the seasonal US$20 million BDC auction, diluted early-week BoG support, causing the cedi to close weaker despite improved supply,” Databank noted.
They also pointed to increased safe-haven demand for the dollar, following developments in US-China trade talks held in London, as a contributing factor.
Looking ahead, Databank expects enhanced interventions by the Bank of Ghana to support the cedi in the near term, particularly amid the possibility of gold windfalls linked to heightened geopolitical tensions.
However, they caution that a stronger-than-expected global demand for the US dollar, especially as a safe-haven asset, could continue to weigh on the local currency.
As of the latest update, the cedi is being sold for an average of GH¢12.20 to the dollar at forex bureaus.