Brazilian Real Holds Near Two-Year High

The Brazilian real held steady at 4.98 per USD, near a two-year high, as markets digested the central bank’s decision to cut the Selic rate alongside still-tight labor market conditions. The Central Bank of Brazil lowered its benchmark rate to 14.50%, citing an uncertain external backdrop shaped by Middle East tensions and tighter global financial conditions. The real found support as the central bank signaled caution on further easing. This stance was reinforced by labor data showing the unemployment rate rose to 6.1% in the rolling quarter ending March from 5.8%, still the lowest for the period since 2012.

The Brazilian real strengthened to 4.98 per USD, near their highest level in two years, amid the outlook of higher foreign exchange inflows and restrictive monetary policy by the Central Bank of Brazil. The ongoing conflict between Iran and the US has suspended oil flows from the Middle East, lifting global energy prices and increasing foreign exchange inflows for alternative energy exporters such as Brazil. The higher energy prices also caused headline inflation to rise to 4.4% in the first half of April, approaching the central bank's upper threshold of 4.5%. A small majority of the market expects the BCB to deliver a 25bps rate cut this week, although threats of unanchored inflation expectations flagged by the central bank supported bets of a hold. Still, the elevated Selic rate of 14.75% maintained carry trade demand that supported the real.

The Brazilian Real touched 4.94 against the USD, the highest since March 2024. Over the past 4 weeks, US Dollar Brazilian Real lost 5.34%, and in the last 12 months, it decreased 12.82%.