The Brazilian real weakened toward 5.43 per US dollar, not far from the one-year high of 5.39 seen on August 12th as investors balanced the currency’s attractive carry trade appeal with rising political. Domestically, focus is on the resumed trial of former President Jair Bolsonaro, with a verdict on his role in the attempted coup expected this week, adding headline risk ahead of election-year budget debates. At the same time, the central bank’s Focus report showed only minor adjustments to exchange-rate forecasts, with end-2025 projections steady near 5.55, limiting expectations of sustained appreciation. Externally, markets are awaiting US inflation data after weak payrolls increased speculation of Fed easing.

The dollar index fell to around 97.5 on Monday, its lowest level since late July, as traders increasingly priced in a Federal Reserve rate cut next week following a weak labor market report that signaled further cooling. Attention now turns to inflation data, with the upcoming CPI and PPI releases expected to provide fresh insight into price pressures. The BLS’s preliminary benchmark revision to employment levels for the 12 months through March will also be closely watched. Markets have nearly fully priced in a 25bps Fed cut this month. In contrast, the ECB is expected to keep rates unchanged at its policy meeting on Thursday, with bets on further cuts later this year continuing to fade. The greenback weakened the most against the Swiss franc, the Australian dollar, and the euro.

The euro traded above $1.17, holding near its strongest level since late July, supported by broad dollar weakness and cautious positioning ahead of a busy week. In France, Prime Minister Francois Bayrou faces a confidence vote on Monday, which he is widely expected to lose—potentially forcing President Emmanuel Macron to appoint a fifth prime minister in less than two years. Later in the week, the European Central Bank meets on Thursday, with expectations that policymakers will keep rates unchanged for a second consecutive meeting. The ECB is weighing the impact of lingering trade uncertainty and the potential fallout from proposed US tariffs, while inflation has remained on target for a third straight month. Across the Atlantic, investors are focused on this week’s US inflation report after weak labor market data last week reinforced the case for a Fed rate cut in September, with markets now factoring in the possibility of a larger-than-usual move.