O dollar 🇧🇷USDBLR) abandoned earlier losses and closed higher against the real this Friday, after the president-elect Luiz Inacio Lula da Silva he showed resistance to reducing the amount of extra spending included in the Transition PEC and dodged questions about who his finance minister would be.
The US currency in sight closed up 0.31%, at 5.2142 reais on sale, after having fallen during much of the morning’s trading.
Despite the high of this session, the dollar lost 3.58% compared to the close of last Friday, its biggest weekly depreciation in about a month, after having retreated 3.85% in the first three trading sessions of the week.
The mood of domestic investors turned sour after Lula defended this Friday in a press conference that Congress approve the Transition PEC “the way we want it”, even though he did not rule out negotiations.
As it was filed in the Senate earlier this week, the PEC makes an exception to the spending ceiling rule of almost 200 billion reais for four years, largely to fund the Bolsa Familia🇧🇷
“The fiscal risks started to become more eminent, since he (Lula) continues to announce mentions of more expenses”, said Márcio Riauba, head of StoneX’s foreign exchange desk.
In addition, Lula said that he should only announce the names of his ministers after the presidential ceremony, on December 12, which increases the uncertainty even more, said Riauba. Lula also refused to say whether former São Paulo mayor Fernando Haddad will be chosen to head the economic portfolio.
Financial agents see the definition of a Minister of Finance as a determining factor in ensuring visibility and facilitating investment decision-making.
Riauba said that the external scenario contributed to the appreciation of the US currency, after employment data showed a stronger-than-expected job creation in the United States, which reduced expectations that the Federal Reserve will be more lenient in the conduct of its monetary tightening.
Job creation outside the US farm sector totaled 263,000 last month, the Labor Department said, above the 200,000 jobs expected by economists polled by Reuters.
Despite the high of this session, the dollar fell sharply in relation to the close of last Friday, registering its biggest weekly depreciation in about a month, after having retreated 3.85% in the accumulated of the first three trading sessions of the week.
Investors associated this recent decline both with hopes for milder interest rate hikes in the United States, now reduced in the wake of the employment report, and with the expectation that the Transition PEC will be dehydrated during the course of Congress.
“With regard to the fiscal impact, Lula’s team seems to have defined a ‘floor’ that it considers reasonable to minimize the negative fiscal impacts. There are, however, pressures from within Congress and the market for this value to drop to something between 80 billion and 130 billion reais in order to avoid a spike in the debt/GDP ratio,” said Levante Investimentos in a note to clients.
“A more pessimistic scenario was being priced and a smaller fiscal impact brings some relief to financial assets”, added the institution.
PT leader in the Chamber of Deputies, Reginaldo Lopes (MG), who is a member of the government transition, said this Friday that the floor for the Transition PEC is an exception of 150 billion reais to the spending.
Source: Moneytimes
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