Dollar drops slightly against real with monetary policy in focus

By Luana Maria Benedito

SAO PAULO (Reuters) – The dollar was regaining some ground after reaching below 5.13 reais on Monday, with the outlook for interest rates in both the United States and Brazil – on the eve of the Bank’s monetary policy meeting. Central – dominating the focus of investors, who followed international fears of recession.

At 10:23 (Brasília time), the spot dollar advanced 0.24%, at 5.1851 reais on sale, but, at the lowest of the day, it fell by 0.87%, at 5.1277 reais, a level that it hadn’t been registered since June 22nd.

On B3, at 10:23 (GMT), the dollar futures contract of the first maturity rose 0.16%, at 5.2305 reais.

The dollar’s losses seen earlier this morning came on the heels of an accumulated low of 5.91% seen last week, in which the currency closed at 5.1727 reais. In the month of July, the currency reversed previous gains and dropped 1.12%, after having reached a high of up to 5.09% in the period.

Market participants pointed out that it is normal, after significant movements in the US currency, to see occasional adjustments in the opposite direction, as traders take profits.

Abroad, the dollar had widespread losses early this week, with its index against a basket of strong pairs down 0.40% to 105.570, far from a two-decade high last month, which strategists from Travelex said it was a possible impetus for the real throughout this session.

Risky Brazilian currency pairs, such as the Australian dollar, South African rand and Mexican and Chilean pesos, had strong gains on Monday, as investors moderated their bets on the magnitude of the monetary tightening to be carried out by the Federal Reserve, the central bank of the United States. United States.

Monetary policy is also focused on the local market, Travelex said in a note, with investors awaiting the central bank’s two-day meeting, which ends on Wednesday. At the meeting, the Selic rate should be raised by 0.50 percentage point, to 13.75% per year, showed a Reuters survey of economists.

In general, the higher the interest rates in a country, the more its currency tends to benefit, as high borrowing rates boost local debt returns, attracting foreign investors.

In this regard, Robin Brooks, chief economist at the Institute of International Finance (IIF), said on Sunday that the recovery of the real seen at the end of last month largely reflects a softening in the “hawkish” turn (hard fighting inflation) from the Fed, which “will not need to raise interest rates as aggressively” as US borrowing costs approach a level considered neutral.

He added in a post on Twitter that strong surpluses in Brazil’s trade balance contribute to his view that the real is at undervalued levels. The IIF sees an exchange rate of 4.50 reais per dollar as a “fair” level, that is, in line with the country’s macroeconomic fundamentals.

BTG Pactual’s macro and strategy team said in a report on Monday that the “absence of news in the Brazilian political scenario” also contributed to the recent appreciation of the real, as it allowed external drivers to offset local concerns.

However, the document stressed that “the local currency faces a challenging scenario in the face of a scenario of global recession and loss of strength in commodities.

The dollar accumulates a low of 7% against the real in 2022, but is still more than 12% above the minimum for the end of this year, of 4.6075 reais, reached in early April.


About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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