Dollar rises to R$5.059, highest value in more than 5 months; Stock market falls

What happened

The market reflected strong data from American industry. The US purchasing managers index (PMI) fell from 52.2 to 51.9 in March, according to a final survey released today by S&P Global. The result contradicted the forecast of analysts consulted by FactSet, of an increase to 52.5. Despite the drop, a reading above 50 indicates that the sector continues to expand, albeit at a slower pace.

Numbers affected bets for an interest rate cut in the US. In addition to the PMI, the latest inflation data has reduced investors’ conviction that the Fed (Federal Reserve, the American Central Bank) will start lowering interest rates in June. According to the CME Group platform, the chance of interest rates remaining in the current range — 5.25% to 5.5% — rose from 39.6% to 46.4% since last Thursday (28).

Stable interest rates in the US tend to benefit the dollar. This happens because, with interest rates still at a high level, investors redirect resources to the American fixed income market, considered very safe. On the other hand, signs that the Fed will start reducing interest rates soon tend to boost riskier, but more profitable currencies, such as the real.

In parallel, data from China surprised positively. The Chinese PMI rose to 51.1 in March, exceeding market expectations. Added to recent export and retail sales data, the result suggests a firm start to the year for the world’s second largest economy. Last week, Citi raised its forecast for China’s 2024 growth to 5% from 4.6%.

We had a very important indicator for US industry, the PMI, which came in well above expectations (…). The market began to worry that interest rates would not fall from June onwards. The fact is that stable interest rates abroad mean that our stock market, in the short term, does not rise, which is very negative.
Rodrigo Cohen, co-founder of Escola de Investimentos