It is difficult to imagine the dollar returning to a level below R$5, even if a little calm and serenity returns to the global exchangewith emerging and developed country currencies recovering part of the losses suffered in relation to the dollar at the height of nervousness about the global geopolitical situation and pessimism regarding the magnitude of the cuts in fees us U.S.
O real Brazilian changed price. And this is because, in the eyes of investors, a fiscal anchor with a minimum of credibility no longer exists in Brazil. In today’s picture, our currency is worth less, unless the central bank give your monetary policy a break and stop cutting interest rates at a much higher level than the consensus of analyst projections points to today, interrupting the current cycle of reducing the Selic rate at a level close to or even above what the more pessimists estimate, interest rates still in double digits.
The escalation of tension between Israel and Iran and the upward surprises in the most recent US inflation indices and activity indicators, undermining expectations of a greater number of US interest rate cuts by the Federal Reserve, caused an “overshooting” – spike – of the dollar against most international currencies. Therefore, it is reasonable to expect that any improvement in the global geopolitical scenario and in the rate of deceleration of American inflation will open space for most currencies to settle at a more valued level in relation to the dollar, reducing recent losses.
But this narrative may not work for the Brazilian real after the change in the fiscal target from primary surplus in 2025 to zero deficit, with the oscillation band allowing a gap of 0.25% of GDP. With this change, the government generated distrust in the market that, in the future, it could worsen its targets again, to accommodate spending increases consistent with political ambitions in electoral cycles.
Without a credible fiscal anchor, monetary policy needs to carry an additional burden to contain worsening inflationary expectations, limiting demand and new pressures on prices. Otherwise, one of the immediate effects will be on the exchange rate. But then, where will the dollar end up?
Even if there is an improvement in external stress, without a signal from the Central Bank of a tighter monetary policy, given the implosion of the fiscal framework, the exchange rate would be much closer to one dollar at the current level, close to R$5.20 , than at R$5.00. And that with a good dose of condescension.
