The Brazilian real has depreciated to over 5.45 per US dollar, reaching an eight-week low, amid renewed political uncertainty that has stirred fiscal concerns and cast doubt on the long-term viability of fiscal responsibility. The return of Senator Flávio Bolsonaro to pre-candidacy has amplified political risk and raised questions about the opposition's unity and the enduring nature of any market-friendly fiscal agreements, causing foreign investors to reduce their exposure to the real. Meanwhile, markets are bracing for two significant policy announcements this week: the Brazilian Central Bank's Copom decision on the Selic rate and the Federal Reserve's announcement in the United States. This anticipation has led market participants to withhold liquidity pending clearer guidance on interest rates and differentials. Domestically, the Focus survey results have not improved sentiment, as they only slightly adjusted inflation and growth expectations, leaving the forecast for a high Selic rate unchanged and real rates vulnerable to compression if future rate cuts become more likely.
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