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Tuesday, January 31, 2023

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Is buying the dollar now to profit from the Fed’s hike next week worth it?

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Dollar has shown strong oscillation in the local market with the policy, while the end of interest rate hikes in the US secures the currency’s advance (Image: Pixabay/kalhh )

In the first weeks of 2023, with a new government in Brazil, the dollar in sight has been exhibiting its usual volatility. This month, the currency reached a maximum of R$ 5.48, while it went to a minimum close to R$ 5.05.

The most intense oscillation in a short period of time is, according to analysts, linked to the communication noise of the government of Luiz Inácio Lula da Silva, which involves speeches by the Minister of Finance, Fernando Haddadfrom other portfolios linked to the economy, autonomy of the central bank (BC), creation of a common currency with Argentina. In addition to the fiscal risks and fears and with the country’s public accounts.

Dollar accommodated?

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If the currency is more agitated in the domestic market, abroad, the Dollar Index (DXY) has exhibited a “more well-behaved” movement. The index that measures the strength of the dollar against a basket of currencies operates at the lowest levels since June 2022, close to 102 points.

For the market intelligence analyst at StoneXLeonel Mattos, it is not about accommodation of the DXY, but a new reading in relation to the dollar abroad and the US economy. U.S.

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According to him, amid the signs of the Federal Reserve (Fedthe US central bank) that it will reduce the pace of interest rate hikes, there was a migration of resources to Europe, a region that has raised the tone in relation to monetary policy.

“The interest rate hike seems to be coming to an end in the United States. With that, we are following a cooling of the dollar. In addition, the economic prospects for the country are a little better and this has taken some weight off the currency. It is much more a change of reading than accommodation of a level”, she evaluates.

However, the chief economist at Veedha InvestimentosCamila Abdelmalack, says that there is a consensus that the dollar has already reached its peak on the international scene.

“The rise in interest rates in the United States [ciclo iniciado em março de 2022] result in a global rise in the dollar. Now, with the end of the high cycle approaching [de juros] there, the resumption of prices of commodities and the reopening of the economy of Chinawe also have a global cooling of the American currency”, he comments.

According to the economist, the expectation for the Fed meeting next week, which should result in an increase of 0.25 percentage points (pp), even if directors of the monetary authority maintain a tougher speech (“hawkish”) in relation to combating inflation.

“The speech says more about keeping interest rates high for an extended period than it does in the sense of monetary tightening being greater than priced in by the market. After this 0.25 pp residual increase, the market will understand whether the Fed will leave the door open for further residual increases,” he adds.

Strong Euro Indicates Weaker Dollar

The StoneX analyst draws attention to the current levels of euroquoted in the range of 1.08 to US$1. euro zone operates at the highest levels of the last eight months and leaves behind the scenario of parity with the North American currency, reached between July and August of last year.

With that, Mattos observes that the economic expectation for the Europe changed, with the region following a path of higher interest rates, feeling the effects of inflation and showing that, in relation to the United States, it should take more time to recover.

“The euro and the pound, a little, have shown this change of scenery against the dollar. While they are strengthening, the American currency is cooling down, diluting the bets of a recession in the United States a little”, he comments.

What to do until the Fed?

The Veedha economist says that, in recent weeks, the international scenario has helped to give breath to the real against the dollar.

However, if it weren’t for the more sensitive political scenario, the Brazilian currency could “be enjoying” a more positive moment. “It could be closer to R$5. But the policy has been a counterweight to that”, he ponders.

Mattos, from StoneX, adds that until the Fed meeting and in the short term, the US currency should continue showing fluctuations in the domestic market. However, limited in the range between R$ 5.20 and R$ 5.40.

Source: Moneytimes

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