Dollar falls after mixed US data does not change bets on Fed’s start of cuts By Reuters

By Luana Maria Benedito

SÃO PAULO (Reuters) – The currency fell slightly against the real this Thursday, after new data on inflation, retail and the labor market in the United States painted a mixed picture that did not change bets on the start of the monetary easing cycle of the Federal Reserve.

At 10:20 am (Brasília time), the spot dollar fell 0.14%, to 4.9677 reais on sale. At B3 (BVMF:), the first maturity contract fell 0.09%, to 4.9700 reais on sale.

The U.S. producer price index for final demand rose 0.6% last month after rising 0.3% in January, the Labor Department said on Thursday.

Economists consulted by Reuters predicted that the index would rise 0.3%.

On the other hand, a narrower measure of the producer price index, which excludes volatile components such as food, energy and commercial services, slowed the increase to 0.4% in February from 0.6% in January.

Additionally, U.S. retail sales rose 0.6% last month, the Commerce Department reported Thursday. January data was revised downwards, showing that sales fell 1.1%, rather than 0.8% as previously reported.

Economists polled by Reuters predicted that retail sales would increase 0.8% in February.

“I think we have, at both ends, Brazil and the USA, indicators that support a maintenance of the interest differential. Although the local data here does not change the perception of the Selic trajectory, (the US data) also does not support a maintenance for long time of interest rates abroad by the Fed”, said Fernando Bergallo, director of operations at FB Capital.

Next week, on Wednesday, both the Federal Reserve and the Central Bank of Brazil will end their respective monetary policy meetings. Abroad, the expectation continues to be that the Fed will keep its basic rate unchanged until a first cut in June, while, here, there is a consensus that the BC will reduce the Selic again by 0.50 percentage points, to 11.75%.

The greater the interest rate differential between Brazil and the USA, the more the real tends to benefit from “carry trade” strategies, in which operators take loans in low-interest countries and invest this money in more profitable markets.

Thus, the longer the Fed takes to cut its rates, especially at a time of monetary easing in Brazil, the more the dollar tends to advance against the Brazilian currency — so that the maintenance of bets on the beginning of the easing cycle in the USA, without postponements, has been seen favorably by the market.

The day before, the North American currency traded on the interbank market had a negative variation of 0.01%, at 4.9745 reais on sale.