Fernando Cardoso
SAO PAULO (Reuters) – The dollar rose sharply against the real on Friday as investors weighed stronger-than-expected Brazilian inflation data and new Chinese fiscal stimulus announcements that disappointed markets.
At 10:09 a.m., the spot dollar was up 1.43% at R$5.7572 for sale. On B3, the first-month dollar futures contract rose 0.88% to R$5.760 on offer.
At this session, investors’ attention switched to the domestic scenario with the publication of new data on consumer inflation, which created risk appetite in the foreign exchange market.
On Friday, IBGE reported that the IPCA index accelerated more than expected in October, reaching a 0.56% month-over-month increase compared with a 0.44% increase in September. Economists polled by Reuters had expected growth of 0.53%.
Over the 12 months, inflation rose to 4.76% from 4.42% in the previous month, marking the first time since January this year that the price index exceeded the central bank’s target ceiling of 4.50%.
The result was a perception of uncontrolled inflation in Brazil, prompting investors to abandon the Brazilian currency in favor of the dollar.
“IPCA is above the median. This brings with it future interest rates and a soap opera with the announcement of the fiscal package. There are high expectations from today’s announcement, which will ease this discomfort and may bring some relief,” said Fernando Bergallo, chief operating officer of FB Capital.
On the Brazilian interest rate curve, DI rates have posted a strong rise, with moneymakers betting that Copom will have to tighten monetary policy further to control rising prices.
The market continues to await the announcement of a package of fiscal measures by the government, which seeks to guarantee support for the fiscal system.
On Wednesday, Copom raised the Selic rate by 50 basis points to 11.25% and provided no guidance for its next decisions. In a statement, department officials defended the need for the government to take structural fiscal measures.
The results of the October IPCA should put further pressure on the executive to announce promised measures.
In the external scenario, emerging currencies such as the real also suffered due to fresh disappointment in China’s fiscal stimulus, which has helped lower prices of important commodities, especially iron ore and oil.
“The Chinese government should opt for gradual relief measures rather than a bazooka of stimulus, which could make it difficult to improve sentiment towards countries with strong trade ties with China, such as Brazil,” Eduardo said in a statement to markets. Analyst at Ebury Bank.
The dollar rose against the Mexican peso, South African rand and Chilean peso.
Markets are also digesting the Federal Reserve’s decision yesterday to cut interest rates by 25 basis points, slowing the pace of monetary policy easing after a 50-point cut in September.
The week was marked by Donald Trump’s victory in the US presidential election, which led to a rise in the US currency due to the prospect of implementing measures promised by the Republican that analysts consider inflationary, such as tariffs and tax cuts.
Fed Chairman Jerome Powell said at a press conference on Thursday that the outcome of the election should not affect US monetary policy in the short term.
The dollar index, which measures the U.S. currency’s performance against a basket of six currencies, rose 0.13% to 104.540.
(Editing by Camila Moreira)
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Source: Istoe Dinheiro
I work as an author at the World Herald News, a news website that also covers the economy. I have been writing about economic topics for over six years and have written extensively on topics such as unemployment, housing prices, and the stock market. My goal is to provide readers with expert insight into these important issues so they can make informed decisions.
