Brazilian Real Weakens Toward Early-August Lows

The Brazilian real strengthened toward 5.22 per US dollar, rebounding toward its strongest levels since May 2024 as markets digested the latest Brazilian central bank’s decision minutes. Policymakers signalled easing is likely to begin in March but emphasized that the pace and size of cuts will remain strictly data dependent, an outcome viewed as a predictable transition rather than a dovish shock. This reduced the policy risk premium and supported carry and duration inflows while the Selic remained elevated at 15%. A softer US dollar against emerging market and commodity currencies further eased pressure on USD BRL and improved the real’s appeal to foreign investors. Support was reinforced by favourable terms of trade and steady foreign demand for Brazilian assets anchored in high real yields. Elevated US yields have had limited spillover so far, allowing domestic factors to dominate, though persistent fiscal uncertainty and political noise continue to cap upside.

The Brazilian real weakened past 5.26 per US dollar, pulling back from its strongest levels since May 2024 as renewed US dollar strength and shifting global rate dynamics reduced support for high carry currencies. Externally, the move reflects the dollar’s rebound after January’s decline, driven by firmer US activity data and the nomination of Kevin Warsh as the next Federal Reserve chair, which reinforced expectations of tighter liquidity conditions and a more disciplined balance sheet approach, lifting US yields and increasing the opportunity cost of holding BRL. Domestically, while Copom has maintained the Selic at a restrictive 15%, policymakers have reiterated that any future easing will remain conditional on sustained disinflation and fiscal discipline, limiting expectations for additional upside from Brazil’s already well priced real yield advantage and offering little fresh support to the currency.

The Brazilian real strengthened past 5.20 per US dollar, testing its strongest levels since May 2024 as investors digested monetary signals at home alongside renewed weakness in the dollar. Domestically, Copom’s decision to keep the Selic at a historically restrictive 15%, while emphasizing that any future easing will be cautious and conditional, continues to anchor a wide and attractive real yield differential, sustaining foreign carry and duration inflows into Brazilian assets. That support has been reinforced by favourable terms-of-trade dynamics and steady demand for local fixed income, helping the currency remain resilient. Externally, the dollar has softened amid policy uncertainty in Washington, political signals that tolerate currency weakness, and continued flows into real assets, all of which have reduced pressure on the real. Still, upside momentum has moderated as domestic political and fiscal noise add to lingering concerns over the fiscal outlook.