Brazilian Real Weakens as Fed Hike Bets Rise

2026-08-28 18:51 By Isabela Couto 1 min. read

The Brazilian real weakened to around 5.205 per USD, nearing the one-month low of 5.21 touched on August 14, as a more restrictive policy signal from Fed Chair Warsh supported the US dollar.

Warsh said the Fed is tracking the PCE index as its inflation gauge, using firmer rhetoric than earlier suggestions that a newly created task force could shift the central bank’s preferred measure.

Rate futures subsequently shifted toward pricing a potential Fed rate hike next month.

Meanwhile, Brazil created 58,568 formal jobs in July, well below forecasts of 112,000 and down sharply from 145,161 in June.

Inflation eased to 4.25% in the first half of August, below the BCB’s 4.5% upper tolerance band.

Softer labor and inflation data could allow the BCB to continue its 25-basis-point easing cycle.

A Fed hike and a BCB cut would narrow the rate differential and reduce the appeal of Brazilian assets.

However, unemployment fell to 5.3% in the rolling quarter through July, its lowest level since 2025.



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Brazilian Real Weakens as Fed Hike Bets Rise
The Brazilian real weakened to around 5.205 per USD, nearing the one-month low of 5.21 touched on August 14, as a more restrictive policy signal from Fed Chair Warsh supported the US dollar. Warsh said the Fed is tracking the PCE index as its inflation gauge, using firmer rhetoric than earlier suggestions that a newly created task force could shift the central bank’s preferred measure. Rate futures subsequently shifted toward pricing a potential Fed rate hike next month. Meanwhile, Brazil created 58,568 formal jobs in July, well below forecasts of 112,000 and down sharply from 145,161 in June. Inflation eased to 4.25% in the first half of August, below the BCB’s 4.5% upper tolerance band. Softer labor and inflation data could allow the BCB to continue its 25-basis-point easing cycle. A Fed hike and a BCB cut would narrow the rate differential and reduce the appeal of Brazilian assets. However, unemployment fell to 5.3% in the rolling quarter through July, its lowest level since 2025.
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Brazilian Real Gains as BCB Signals Intervention
The Brazilian real strengthened slightly to 5.16 per USD after reaching a more than one-month low of 5.21 on August 14th, amid expectations of new foreign-exchange operations by the BCB. The central bank is expected to intervene to increase dollar supply and ensure market liquidity, supporting the real and influencing exchange-rate formation. Meanwhile, labor market data confirmed expectations for another decline in Brazil’s unemployment rate, from 5.4% to 5.3%. The labor market remains highly resilient, with employment and formal employment reaching record highs, which could lead the Copom to pause its 25-basis-point-per-meeting easing cycle. However, Brazil’s inflation rate eased to 4.25% in the first half of August from 4.44% in July, remaining below the central bank’s 4.5% upper tolerance band.
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Brazilian Real Weakens to One-Month Low
The Brazilian real weakened to 5.21 per USD, reaching its weakest level in more than a month in mid-August as investors continued to reduce their exposure to Brazilian assets. The market is pricing in uncertainty over the next government and its economic agenda. The perception that the next government will struggle to implement a consistent fiscal adjustment is beginning to translate into a higher risk premium in asset prices. Concerns are increasing as elections approach and foreign capital outflows accelerate. Banks and brokerages have also reduced their exposure to the real, unwinding currency positions in favor of other emerging-market currencies. The move intensified following a more pessimistic view of the local market from JPMorgan. The bank downgraded its recommendation on Brazilian assets from overweight to neutral, citing the Selic easing cycle, the electoral outlook and deteriorating credit conditions.
2026-08-14