Brazilian Real Eases Further
The Brazilian real fell beyond 5.44 against the US dollar, affected by a robust dollar that is exerting pressure on currencies in emerging markets. This occurred as investors evaluated the most recent domestic inflation numbers. Brazil's mid-month data indicated an annual increase of 4.95% in August, slightly higher than the 4.91% forecast. A more detailed analysis showed strengthened services and certain energy sectors, dampening hopes for a swift easing of monetary policy and driving up market expectations for future policy expenses. This revaluation caused an increase in DI rates across the curve, reinforcing expectations that the central bank will maintain restrictive policies at high nominal rates, subsequently increasing local borrowing costs. Concurrently, reduced trade revenues and a broader external deficit result in fewer foreign capital inflows to cushion economic shocks. Consequently, the combination of a stronger dollar, persistent domestic inflation components, and stricter domestic financial conditions is exerting pressure on the real.
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