By Fabricio de Castro
SÃO PAULO (Reuters) – The dollar in cash closed Monday with a firm rise in Brazil, for the second consecutive session above 5 reais, on a day marked by the release of strong data on North American industry, which made the prices reflect the prospect that the US interest rate cut may be postponed again.
The spot dollar closed the day at 5.0588 reais on sale, up 0.86%. This is the highest closing value since October 13th of last year, when the dollar ended the session at 5.0888 reais. In two business days, the currency accumulated a gain of 1.57%.
At 5:31 pm, on B3, the first maturity dollar futures contract rose 0.75%, to 5.0750 reais on sale.
After remaining closed in Brazil and the USA on Friday due to the holiday, markets opened on Monday reflecting data and comments from Federal Reserve Chair Jerome Powell, made at the end of last week.
Data showed that the core PCE index rose 0.3% in February, in line with market expectations. The full index also increased by 0.3%. Powell said that the institution expects inflation to ease, but that if this does not happen, interest rates in the US will be kept where they are for longer. According to him, the Fed will let economic data provide the answer on interest rates.
In this scenario, the dollar gained strength against other currencies at the beginning of the session, including the real, amid the steady increase in Treasury yields, with investors repricing bets that the Fed will start cutting interest rates in June.
“On Friday, we had statements from the Fed chair making it clear that (the institution) depends on new numbers to verify whether it will cut interest rates or not at the June meeting. He also indicated that the Fed may continue with higher interest rates for longer”, pointed out the director of Correparti Corretora, Jefferson Rugik. “Following these statements, the dollar opened strong abroad and followed suit here.”
The movement was amplified from 11 am onwards, with the release of positive numbers on North American industry, reinforcing the assessment that the Fed may postpone the start of the interest rate cut process.
The Institute for Supply Management (ISM) said its manufacturing Purchasing Managers’ Index (PMI) rose to 50.3 last month, the first reading above 50 since September 2022, compared with 47 .8 in February. A PMI reading above 50 indicates growth in the industrial sector. The recovery ended 16 consecutive months of contraction in the industrial sector, which accounts for 10.4% of the US economy.
In this scenario, the spot dollar fluctuated between the minimum price of 5.0098 reais (-0.12%) at 9:01 am — shortly after opening — and the maximum of 5.0714 reais (+1.11%) at 12:46 p.m.
The dollar’s advance against the real was justified by the reading that, with interest rates high for longer in the USA and not so low in Brazil — as the Central Bank has been signaling the possibility of slowing down the process of cutting the Selic rate in June – -, the rate differential between the two countries tends to decrease.
“The interest rate differential, which is currently around 5.35%, will fall if the Fed postpones the process of cutting (the base rate). Postponing until July (the start of the cuts) will already be bad for the real. If it goes to September, it will be even worse”, commented the director of the consulting firm Wagner Investimentos, José Faria Júnior.
At 5:32 pm, the dollar index — which measures the performance of the US currency against a basket of six currencies — rose 0.46%, to 104.960.
In the morning, the BC sold all 16,000 traditional currency swap contracts offered to roll over June maturities.
