Brazilian Real Holds Strong After Price Data

The Brazilian Real touched 5.16 against the USD, the highest since May 2024. Over the past 4 weeks, US Dollar Brazilian Real lost 3.79%, and in the last 12 months, it decreased 10.36%.

The Brazilian real held around 5.2 per US dollar, testing its strongest level since May 2024 as markets parsed through the latest inflation release and renewed fiscal unease. January IPCA inflation rose to 4.44% year on year broadly in line with expectations but accelerating from December which kept price pressures and monetary policy optionality firmly in focus and tempered confidence around the timing and depth of any easing cycle. At the same time political and fiscal uncertainties resurfaced with close attention on Finance Minister Haddad’s remarks and the broader debate over fiscal trajectories and central bank governance sustaining a residual risk premium and leading foreign investors to demand greater compensation for real exposure. Softer commodity signals compounded these pressures by weakening Brazil’s external support backdrop reinforcing the pullback in the currency after its early February highs.

The Brazilian real strengthened past 5.18 per US dollar testing it highest level since May-2024 amid high domestic carry, clearer monetary policy guidance, and a weaker US dollar. Central bank minutes signalled that easing is likely to begin in March but stressed a strictly data dependent pace, reinforcing expectations of gradual cuts and keeping real yields attractive with the Selic still at 15%. This predictable policy path trimmed the policy risk premium without triggering a dovish repricing. At the same time, a softer US dollar further supported inflows into high yielding emerging market currencies. External fundamentals also helped, as favourable terms of trade, strong export receipts, elevated iron ore shipments, and projections for a large trade surplus continue to underpin foreign currency inflows and ease external financing concerns. Still, persistent fiscal uncertainty and political noise cap upside by sustaining a latent risk premium.