Dollar closes at R$5.11, with interest rate decision in the US and improvement in Brazil’s credit outlook; Ibovespa rises | Economy

The dollar closed lower and the Ibovespa closed higher this Thursday (2), both reflecting greater investor optimism with local and international news.

The result was already widely expected by the market, but attention turned to the statement released by the Fed shortly after the meeting, which indicated that no further interest rate increases are expected. (understand below)

See below for a summary of the markets.

At the end of the session, the dollar fell 1.53%, quoted at R$5.1134. At the low of the day, it reached R$5.1003. See more quotes.

As a result, he accumulated:

• drop of 0.06% in the week;
• decline of 1.53% in the month;
• gain of 5.38% in the year.

On Tuesday, the North American currency closed up 1.52%, sold at R$5.1927.

The Ibovespa closed up 0.95%, at 127,122 points.

As a result, he accumulated:

• increase of 0.47% in the week;
• advance of 0.95% in the month;
• losses of 5.26% in the year.

On Tuesday, the index fell 1.12%, to 125,924 points.

Understand what makes the dollar rise or fall

In the first trading session of the Brazilian market after the Fed’s monetary policy decision, investors reflected, above all, the Committee’s statement, which emphasized caution with inflation.

“In recent months, there has been no new progress towards the 2% inflation objective”, reported the collegiate, reinforcing that recent indicators of the North American economy continued to expand “at a solid pace”.

Annual inflation in the United States is stagnant at around 3%, after spiking throughout 2022 and reaching a record level of 9%. Despite the drop, the price indicator did not return to within the Fed’s target, which is 2% per year.

Therefore, the institution continues to send signals to the market that interest rates in the largest economy in the world may take longer to fall. According to the FedWatch tool, which brings together market projections for interest rates in the United States, a rate cut cycle should only begin in September – or even after that.

However, the Fed also signaled that it does not plan further interest rate increases, which is beneficial for the market.

With the release of the data, 10-year Treasury rates, a global reference for investments, showed an even greater drop, and experts indicated that the chance of the Fed starting to cut interest rates in September was on the radar.

Higher interest rates in the USA end up driving investments into the largest economy in the world, which takes money away from other markets, especially emerging ones, such as Brazil.

In Brazil, the market also reflected the change in the country’s credit rating. Moody’s announced yesterday that it maintained Brazil’s credit rating at Ba2 level, but changed the assessment perspective from “stable” to “positive”.

The Ba2 rating keeps Brazil in a “speculative grade”, which indicates a greater risk for foreign investments. However, with the change of assessment to “positive”, Moody’s signals that it may raise the credit rating in the future.

“Moody’s assesses that the prospects for real growth in Brazil’s gross domestic product (GDP) are more robust than in pre-pandemic years, as a consequence of the implementation of structural reforms in several governments, as well as the presence of institutional barriers that reduce uncertainty about the future direction of public policies”, says the agency’s note.

The statement says that “stronger growth” and “fiscal consolidation” can stabilize the debt burden on public accounts, but points out that “there are risks” to the continuation of this improvement.

“The affirmation of the Ba2 rating is based on Brazil’s still relatively weak fiscal strength, given the country’s high level of debt and its weak debt repayment capacity, which remains sensitive to economic or financial shocks,” says Moody’s.

In addition to the effect of American interest rates on the Brazilian economy, there has been a worsening in the risk situation since the federal government announced the change in the fiscal target for the coming years. For 2025, the government proposed a zero fiscal target, instead of a surplus of 0.5% of GDP, and a reduction also for the coming years.

The decision ended up being seen by the market as a defeat for the economic team, which initially defended at least a primary surplus of 0.25% of GDP. It was also interpreted that the decision opens space for more spending and less debt control, which demands higher interest rates so that foreign investors find the country attractive.

Additionally, the Central Bank monitors the strength of the job market. Economists understand that a smaller number of unemployed people and an increase in income without productivity gains can generate pressure on inflation.

Data from the Ministry of Labor and Employment show that Brazil created 244.3 thousand formal jobs in March, an increase of 25.7% compared to the same month last year. It was the largest generation of formal vacancies for the month of March since the beginning of the new Caged historical series, in 2020.

The government wanted the project to end, but had to negotiate with Congress, which defended its continuity. The number of sectors covered, currently 44, will fall to 30, according to the project.

After agreement between the economic team and Chamber leaders, it was possible to stipulate a spending limit of R$15 billion with tax exemptions until 2026. The duration of the program will, therefore, be limited in two ways: when it reaches the value of R$15 billion or when it reaches December 2026.