O dollar 🇧🇷USDBLR) had a sharp drop against the real this Wednesday, after investors showed some relief with the reduction in the expansion of the spending ceiling foreseen in the Transition PEC, on the day of the monetary policy decision of the Copom and the weakness of the US currency abroad.
In the spot market, the dollar closed down by 1.23%, at 5.2065 reais, the lowest closing level since last Thursday (5.1979).
In his first congressional test, President-elect Luiz Inacio Lula da Silva secured a victory when it was approved the day before, at the Constitution and Justice Commission (CCJ) of the Senate, the PEC of the Transition foreseeing an expansion of the spending ceiling in 145 billion reais for two years for the payment of Bolsa Família in the amount of 600 reais.
However, the result was only possible after the new government made a concession and reduced by 30 billion reais the initial forecast of expanding the spending ceiling by 175 billion reais.
In general, the perception in the market is that such a design of the PEC that was expected to be voted on in the Senate plenary this Wednesday avoided a “worst case scenario”, which helped to sustain the real in this session.
“The dehydration of the Transition PEC, these 30 billion less, this generates a certain relief in expectations,” Lucas Carvalho, chief analyst at Toro Investimentos, told Reuters. “There was a scenario and (the value embedded in the PEC) was lower than expected… and it may be that more dehydration occurs in this text.”
Despite the one-off relief, Carvalho considered that there are “n uncertainties” on investors’ radar, mainly about what will be the fiscal framework in Brazil under Lula and which will be chosen by the PT to head the Ministry of Finance.
The analyst added that the weakness of the US currency abroad contributed to the appreciation of the real. This afternoon, the index that compares the dollar to six strong peers dropped 0.4%.
Among the factors behind this drop, some market players cited optimism in the face of the relaxation of sanitary restrictions in China, while others pointed to the possibility that growing fears of recession will force the US central bank to brake its cycle of monetary tightening.
Now, investors should keep an eye on the BC’s Monetary Policy Committee meeting, which will end this Wednesday after the closing of the markets.
“Fiscal deterioration should gain more space in this communication, but without changing the Selic rate, which will remain at 13.75%”, assessed in a recent report by BTG Pactual on forecasts for the Copom meeting.
However, BTG did not rule out the possibility that the autarchy would leave the door open for a new Selic hike in February 2023, “indicating a worsening in the balance of domestic risks and showing more clearly how the imminent fiscal deterioration could impact the macro environment” , the private creditor said in the document.
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