Real Weakens as Trade and Geopolitical Risks Mount

The Brazilian real weakened to 5.06 per USD in early June as proposed US tariffs on Brazilian products and uncertainty surrounding US-Iran negotiations weighed on investor sentiment. US authorities said the proposed measures stem from findings that Brazil and other countries have not taken sufficient steps to prevent imports of goods produced with forced labor. The prospect of higher trade barriers increased caution toward Brazilian assets. Meanwhile, rising tensions in the Middle East supported oil prices and fueled broader risk aversion. Hostilities intensified after Iranian attacks on Kuwait, while US strikes near the Strait of Hormuz and limited diplomatic progress clouded prospects for a resolution. The combination of geopolitical uncertainty and trade concerns boosted demand for the US dollar, pressuring emerging-market currencies, including the real.

The Brazilian real strengthened slightly to 5.03 per USD in late May as the US dollar softened and oil prices retreated. Signs emerged that the US and Iran may be closer to a formal agreement, with reports indicating that both countries have reached a preliminary understanding, although US President Donald Trump has yet to endorse the terms. The prospect of restored oil flows through the Strait of Hormuz eased global inflation concerns and weighed on the dollar. Domestically, stronger-than-expected GDP data reinforced expectations that the BCB will maintain a hawkish stance. Brazil’s economy grew 1.1% in the first quarter from the previous three months, accelerating from 0.3% in Q4 2025 and marking the strongest expansion in a year. The data supported expectations of higher-for-longer interest rates, boosting the attractiveness of Brazilian assets and underpinning demand for the real.

The Brazilian real weakened to 5.02 per USD in late May, broadly in line with other emerging-market currencies, amid a more hawkish stance from the US Federal Reserve. Rising geopolitical uncertainty in the Middle East also fueled risk aversion and supported the US dollar. Additional pressure came from comments by Federal Reserve Governor Christopher Waller, which reinforced expectations that US interest rates could remain elevated for longer. Domestically, the weakening political position of Senator Flávio Bolsonaro continued to weigh on the real, as markets had expected the opposition to remain competitive in this year’s presidential election.