By Luana Maria Benedito
SÃO PAULO (Reuters) – The dollar began to show a slight increase against the real this Monday, regaining its breath after falling sharply last week, with an eye on a relatively mild climate abroad and with wide expectations for the monetary policy meeting of the Central bank.
At 10:10 am (Brasília time), the dollar in cash rose 0.3%, to 5.0843 reais on sale. On B3, the first-month dollar futures contract rose 0.24%, to 5.0995 reais.
“After a very favorable week for the real, it is possible that we will see a slight correction (in the coming days), as the contexts we addressed are digested,” said Diego Costa, head of foreign exchange for the North and Northeast at B&T Câmbio.
“Both optimism and pessimism in the markets are tested and confronted with economic indicators, and that is what we will observe in the coming days.”
According to him, the focus of the week will be on speeches by Federal Reserve authorities, after, last week, the central bank’s chair, Jerome Powell, practically ruled out the possibility of further interest rate hikes this year. Additionally, Friday’s weaker-than-expected jobs data lifted global optimism, keeping hopes alive that the Fed will cut its key rate once or twice in 2024.
Costa hopes that Fed members who will speak throughout this week will opt for caution and ask for more evidence of a slowdown in inflation and the job market.
In the last session, amid widespread optimism regarding the Fed and with good local news following the recent improvement in Brazil’s credit outlook by Moody’s, the spot US currency closed the day at 5.0693 reais on sale, down 0.86%. Last week, the US currency fell 0.93%.
The Central Bank will close its two-day monetary policy meeting on Wednesday, May 8, in a scenario of renewed uncertainty that led BC president Roberto Campos Neto to open the doors in April for the Copom to reduce the pace of cuts in the Selic, currently at 10.75%, despite its most recent future guidance indicating maintenance of the 0.50 point pace.
Economists consulted in a Reuters survey were divided on the pace of monetary easing, with the majority now believing in a slowdown to 0.25 points, although a significant portion believe in maintaining the 0.50 point step.
Implied probabilities in interest rate futures contracts show almost a 90% chance of the BC cutting the Selic rate by just 0.25 percentage points this week.
In general, the more the Federal Reserve cuts interest rates and the less the BC relaxes local monetary policy, the better for the real. This is because, the greater the interest differential between Brazil and the USA, the more interesting the domestic currency becomes for use in “carry trade” strategies, in which investors take out a loan in a country with low rates and invest this money in a more profitable market.
However, many market participants have warned that, if the BC’s eventual decision to slow down easing is motivated by high fiscal uncertainties, this could nullify the positive carry effect for the real, as the health of public accounts is also a factor taken into consideration for investment decisions.
