Dollar still falls under the effect of US inflation data; local market digests GDP

By Luana Maria Benedito

SÃO PAULO (Reuters) -The dollar fell slightly against the real this Friday, still under the effect of inflation data in line with expectations from the United States released the day before, while the national market digested the reading of economic activity for 2023 .

At 10:09 am (Brasília time), the spot dollar fell 0.20%, to 4.9620 reais on sale.

According to Fernando Bergallo, director of operations at FB Capital, this Friday’s exchange rate movement partly reflects “a generalized adjustment of the dollar against emerging (currencies), also due to a technical adjustment due to the moderate rise in February”.

Last month, the dollar rose 0.7% against the real and 0.6% against a basket of strong peers, largely supported by the postponement of bets on when the Federal Reserve will start cutting its interest rate.

Some market participants feared that yesterday’s US inflation data could surprise to the upside and further delay traders’ projection for the start of monetary easing, but the PCE price index reading came in line with expectations, which kept bets for a first rate cut in June. According to some financial agents, this contributed to the weakness of the dollar in this session.

For Bergallo, the fall in Treasury yields also weighed on the dollar this Friday.

Meanwhile, the local market was digesting IBGE data this morning that showed stagnation in the economy in the fourth quarter, but growth of 2.9% in 2023 as a whole. According to Bergallo, this reading should not have a major impact on financial markets, as it was not far from market and official expectations.

Both the government and the Central Bank expected expansion of 3.0% last year as a whole, while the expectation in a Reuters survey was for an increase of 0.1% on a monthly basis.

Matheus Spiess, an analyst at Empiricus Research, said that the stagnation of GDP in the last quarter shows that “there is a saturation… which is responsible for the greater sensitivity and weakness of the domestic economy, largely, among other things, for the monetary tightening that is being felt by the Brazilian economy”.

However, “we still managed to deliver a beautiful GDP… We start the year thinking that it will grow much less than it actually grows, something that can be observed in 2024, inclusive”, he added.

The day before, the dollar in cash closed the day at 4.9717 reais on sale, a slight increase of 0.01%.

(Editing by Pedro Fonseca)