Brazilian Real Strengthens for 2nd Session

The Brazilian real weakened to around 5.50 per US dollar in November, its weakest level since briefly touching 5.60 immediately after President Lula’s runoff victory over Flávio Bolsonaro. Investors monitored the upcoming Copom decision after the first Focus Bulletin since the election showed higher forecasts for inflation, interest rates and the dollar. In contrast, growth expectations were revised down. In addition, the S&P Global Brazil Manufacturing PMI for October remained in contraction territory. Most market participants expect the benchmark Selic rate to remain unchanged at 13.75% per year, amid concerns over the country’s fiscal outlook. Concerns about the lack of fiscal adjustment have intensified amid uncertainty over key appointments, including the Finance Minister, and the direction of fiscal policy during Lula’s next term.

The Brazilian real weakened to around 5.38 per US dollar, the weakest since touching 5.60 immediately after President Lula’s runoff victory over Flávio Bolsonaro. Investors remain focused on fiscal policy, particularly the government’s commitment to controlling spending and public debt, which has risen significantly in recent years. Concerns over the lack of fiscal adjustment have intensified amid uncertainty over key appointments, including the Finance Ministry, and the direction of fiscal policy in Lula’s next term. Markets had viewed a Bolsonaro administration as more likely to curb public spending, a key factor in lowering interest rates. Brazilian assets had rallied after the first round, when Bolsonaro finished ahead of Lula. Meanwhile, the US dollar strengthened against a basket of currencies following stronger-than-expected GDP growth and accelerating PCE inflation, as Fed policymakers assess incoming data before deciding on their next move.

Brazil’s real recovered some ground, strengthening to around BRL 5.36 per USD after weakening to as low as BRL 5.60 per USD, near its weakest level since mid-2025, immediately following President Lula’s runoff victory over Flávio Bolsonaro. On October 26, the first trading day after the election, the USD closed at BRL 5.40, up 8.21%, amid market turmoil. Markets are focused on fiscal policy, particularly the government’s commitment to controlling spending and public debt, which has risen significantly in recent years. The appointment of the next finance minister will be a key signal. Markets had viewed a Bolsonaro administration as more likely to curb public spending, seen as essential to lowering interest rates. Brazilian assets had rallied after the first round, when Bolsonaro finished ahead of Lula and outperformed polling expectations.