The commercial dollar closed this Monday, 18th, up 0.6%, at 5.02 reais, surpassing the 5 reais mark for the first time since October 2023. The American currency gains on the eve of Super Wednesday, the day in which that the central banks of Brazil and the United States make their monetary policy decisions.
According to analysts, the dollar has strengthened as the scenario of falling interest rates in the US becomes more uncertain. In recent months, strong growth and labor market data, alongside inflation numbers still far from the Fed’s target, have increased market skepticism regarding possible interest rate cuts. Released last week, the core Consumer Price Index (CPI) had an annual increase of 3.8% in February – above the expectation of 3.7% and much higher than the target of 2%.
Currently, 99% of market agents believe that the interest rate will remain intact at 5.50% at this Wednesday’s meeting, according to data from the FedWatch tool. For the majority of investors (55.9%), monetary easing should only begin in June. This is an increase in pessimism compared to the beginning of 2024, when almost 70% of the market was betting on falls in March. Furthermore, expectations are now growing that members of the American Central Bank will signal fewer interest rate cuts this year.
“In the USA, you have a dynamic economy, which grows productively, and at the same time delivers a high interest rate. This ends up attracting money to the United States and driving money away from Brazil”, says Beto Saadia, economist and investment director at Nomos. Here, without any major surprises in recent data, the expectation is that the Copom will maintain its rate of cuts of 0.50 pp in the next meetings.
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The dollar is also gaining strength on the international scene. The DXY index, which compares the dollar to a basket of currencies from developed countries, rose 0.17% in this Monday’s session. In 2024, the increase is 2.16%.
Political impact
On the political front, the government’s attempts at interference in Petrobras and concerns about the fiscal scenario also weigh on the depreciation of the real. According to Marco Caruso, chief economist at PicPay, the surveys that show President Lula’s drop in popularity raise a warning signal in the market. “Historically, when a ruler sees a little deterioration in his popularity, he often opens the coffers to spend. And Brazil does not have the fiscal space to do this. Therefore, there is this concern about a new round of deterioration in Brazilian fiscal issues,” he says.
