Brazil’s Real Under Pressure Following Presidential Election

Brazil’s real trimmed losses to around 5.40 per US dollar in late October after weakening to as low as 5.60, near its lowest level since mid-2025, as markets reacted to President Lula’s runoff victory over Flávio Bolsonaro. The selloff reversed gains following the first round, when Bolsonaro outperformed polls and finished ahead of Lula. Investors had viewed a Bolsonaro administration as more likely to curb public spending, seen as a key factor in lowering interest rates. Markets are now reassessing fiscal risks, including persistent primary deficits and rising public debt, alongside institutional uncertainty surrounding the election. Bolsonaro has reportedly refused to concede and challenged the result in court, although Brazil’s Superior Electoral Court has confirmed the outcome.

Brazil’s real weakened sharply against the US dollar, falling to as low as 5.60 per dollar, near its weakest level since mid-2025, as President Luiz Inácio Lula da Silva’s surprise re-election victory heightened concerns over the country’s fiscal outlook. Lula defeated right-wing Senator Flávio Bolsonaro, son of jailed former president Jair Bolsonaro, winning 51.8% of the vote against Bolsonaro’s 48.2%. Bolsonaro had been favored to win after narrowly leading the first round on October 4, campaigning on tighter fiscal policy and lower corporate taxes. The bitterly contested campaign underscored Brazil’s deep political divisions, leaving Lula facing his toughest political landscape since first taking office in 2003, with a polarized electorate and the most right-wing Congress in the country’s democratic era. Meanwhile, Bolsonaro has reportedly refused to concede and is challenging the results in court, although the Superior Electoral Court has confirmed the outcome.

The Brazilian real is expected to fall by more than 10% on Monday, according to a CME currency futures contract, following President Luiz Inácio Lula da Silva’s narrow re-election victory over Senator Flávio Bolsonaro in Sunday’s runoff. With nearly all ballots counted, Lula secured 51.8% of valid votes, while Bolsonaro received 48.2%. Lula’s win defied polls that had favored Bolsonaro after his narrow first-round lead earlier this month. Since Brazil restored direct elections in 1989, Lula is the first candidate to win a runoff after losing in the first round. Meanwhile, Bolsonaro has called for the election results to be annulled. Investors are focused on the nation's increasingly fragile fiscal outlook and how Lula’s new administration plans to curb public spending and stabilise the high debt burden. Public debt has climbed above 82% of GDP, raising concerns over debt sustainability and contributing to higher borrowing costs.