Cedi picks up against Pound & Euro

– But weakens against US dollar

Story: By Isaac AIDOO, Accra

The Ghanaian cedi continues to experience mixed performance in the foreign exchange market as it weakened against the US dollar but strengthened against both the British pound and the euro. This comes amidst a stagnant day on the Ghana Stock Exchange (GSE), where no movement was recorded in the market’s key indices.

The GSE Composite Index and GSE Financial Stock Index both remained unchanged at 4,395.90 points and 2,200.01 points, respectively. Despite this, market capitalization dipped slightly by 0.01%, closing at GHS 99.1 billion. In terms of stock trading, New Gold was the only decliner, shedding GHS 2.68 to end the day at GHS 403.22 per share. Trading volumes also saw a significant retreat, falling by 67.47% to 118,288 shares, which generated a total turnover of GHS 264,019.67. MTN Ghana dominated the market, contributing 41.05% of the total trading volumes.

On the foreign exchange front, the cedi depreciated by 0.25% against the US dollar, closing at GHS 15.84 per dollar. This brings the cedi’s year-to-date depreciation against the dollar to 25%, underscoring the persistent pressure on the currency as Ghana navigates economic challenges, including inflationary pressures, a widening fiscal deficit, and the burden of external debts. The cedi’s depreciation against the dollar has been driven largely by demand for foreign exchange to settle imports, rising fuel costs, and ongoing global economic uncertainties.

In contrast, the cedi showed signs of resilience against the British pound and the euro. The currency appreciated by 0.69% against the pound, closing at GHS 21.03 per pound, and strengthened by 0.48% against the euro, closing at GHS 17.52 per euro. However, despite these gains, the cedi’s year-to-date depreciation remains significant at 28.06% against the pound and 25.11% against the euro, highlighting the broader challenges the currency faces amid volatile foreign exchange markets.

The contrasting performances of the cedi against these major currencies reflect a complex interplay of factors. The US dollar has remained a dominant currency on the global stage, strengthened by the US Federal Reserve’s monetary policy stance, which has included interest rate hikes aimed at curbing inflation. This has increased demand for dollars, further weakening the cedi. Meanwhile, the British pound and euro have faced their own headwinds, including concerns over economic growth in the UK and the Eurozone, which may have contributed to the cedi’s recent gains against them.

Despite the cedi’s relative strength against the pound and euro, analysts remain cautious about the currency’s outlook. Ghana’s economy continues to be burdened by high inflation, which stood at 20.4% in August 2024, and a challenging debt situation. Although the government has secured an International Monetary Fund (IMF) bailout to stabilize the economy, more needs to be done to build investor confidence and stem the depreciation of the cedi in the longer term. Ghana’s fiscal consolidation efforts, revenue mobilization, and structural reforms will be crucial in shaping the cedi’s trajectory moving forward.

The cedi’s depreciation against the US dollar is particularly significant given the country’s heavy reliance on imported goods, including food and fuel, which are priced in dollars. This has resulted in a higher cost of living for Ghanaians, as businesses pass on the increased costs to consumers. At the same time, the currency’s resilience against the pound and euro offers some relief to those trading with these markets, particularly in sectors like tourism, hospitality, and services, which are sensitive to exchange rate fluctuations.

As the cedi continues to navigate the turbulent foreign exchange markets, market watchers are closely monitoring both domestic and international developments that may impact its performance. With Ghana’s economic recovery still fragile, the cedi’s future will depend heavily on the government’s ability to manage external debts, attract foreign investment, and control inflation. While the cedi’s depreciation against the US dollar poses challenges, particularly in terms of rising import costs, its appreciation against the British pound and euro offers a glimmer of hope. However, with significant year-to-date depreciation still observed across all three major currencies, the path to a stable and stronger cedi remains a steep climb for Ghana’s policymakers and financial stakeholders.