Dollar abandons losses and exceeds BRL 4.90 with ECB, Fed and domestic inflation on the radar

At 10:46 (GMT), the spot dollar advanced 0.45%, at 4.9125 reais on sale, at the highs of the day (Image: REUTERS/Beawiharta)

O dollar abandoned initial losses and started to rise this Thursday morning, trading above 4.90 reais, with the US currency showing some recovery abroad as investors digested the latest monetary policy decision by the European central bank.

Market participants also reacted to data from inflation weaker-than-expected domestic domestics and continued to assess the country’s fiscal outlook, while awaiting further clues on the next monetary policy steps from the US central bank. United States before your meeting next week.

At 10:46 (from Brasilia)the spot dollar advanced 0.45%, at 4.9125 reais on sale, at the highest of the day.

The currency even touched 4.8656 reais at the lowest, down 0.51%, but then gained momentum throughout the negotiations.

At B3, at 10:46 (from Brasilia)the contract of future dollar of first maturity rose 0.22%, at 4.9425 reais.

The highest levels of the day were reached after a slowdown in the fall of the dollar index against a basket of strong rivals abroad, a move that reflected a reversal in the euro sign from positive to negative.

The single currency had been boosted earlier by the European Central Bank’s signal that it will adopt a series of rate hikes starting in July.

However, less harsh comments than expected from the institution’s president, Christine Lagardecaused a reversal of gains, which made room for some recovery of the dollar against both strong and emerging currencies.

Currently, the ECB deposit rate is in negative territory, despite inflation at record levels in the eurozone.

The global mood was also cautious on Thursday ahead of the release, on Friday, of US inflation data.

If the reading shows an acceleration in the rise of prices in the world’s largest economy, bets on a more aggressive positioning by the Federal Reservethe country’s central bank.

This would tend to boost the dollar, as higher interest rates on the US market – considered extremely safe – would undermine the attractiveness of rates in riskier countries, such as the Brazil and other emerging ones.

Here, the focus of the trading session, according to several market participants, was the news of a more intense cooling than expected in domestic inflation.

O IBGE reported on Thursday that the IPCA slowed the rise to 0.47% in May from 1.06% in April, marking the lowest monthly rate since April 2021 (+0.31%).

The reading was below expectations in a survey by the Reutersup 0.60%.

Inflation in 12 months was 11.73% in the period, against 12.13% in April and a projection of 11.84%.

“IPCA in May with a positive surprise (which we haven’t seen for a long time!)”, Rafaela Vitoria, chief economist at Banco Inter, said in a Twitter post. “Copom should give another hike (in interest rates) in June, but it could be the last.”

THE Selic is currently at 12.75%, after more than a year of interest rate hikes by the central bankwhich took the rate from an all-time low of 2% reached during the pandemic.

The rise in borrowing costs was identified as one of the main factors behind the 12% devaluation of the dollar so far in 2022, as it makes the real more interesting for “carry trade” strategies – which seek to profit from the interest rate differential. between two economies.

Next week, on the 14th and 15th, the Monetary Policy Committee (Copom) of the autarchy is meeting for a new setting of the Selic.

Even if the BC chooses to end its monetary tightening cycle this month, the Brazilian interest rate will remain at a very high level, among the highest in the world in nominal terms.

Here, fiscal risk can also disrupt the performance of the real and bring volatility to markets in the short term, Caio Tonet, founding partner of W1 Capital, told Reuters, citing the news around government and congressional proposals to try to reduce the domestic inflation by reducing taxes on fuel and other products.

“If you lower taxes, you lower revenues and increase country risk,” explained Tonet, since lower revenues could affect the government’s ability to pay its debt.

“Naturally, this makes investors worried, because Brazil already has a fragile fiscal issue. We will most likely continue to see the impact of this issue on the markets.”

The day before, the US currency in sight was up 0.34%, at 4.8906 reais on sale.


O Money Times publishes informative articles of a journalistic nature. This publication does not constitute investment advice..

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Source: Moneytimes

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