The dollar closed slightly higher against the real on Thursday, despite the US currency’s strong gains abroad, with investors incorporating more cautious guidance from the Central Bank into its monetary policy statement.
The U.S. cash currency rose 0.11% to 4.9797 reais on sale, despite gains of about 0.80% in the index that compares one dollar to a basket of six developed-world rivals.
While resilient economic data from the United States weighed on risk appetite in the international currency market, this was offset by Brazil’s Central Bank’s decision a day earlier to reduce its guidance on future interest rate cuts citing greater uncertainty , saying that its board of directors expects a reduction of 0.50 percentage points only at the next meeting, in May. From August the orientation envisaged new equivalent cuts in the next meetings, in plural.
“The market interprets this as a signal of caution, as revisions to the pace of the Selic base interest rate cut are easier now,” said Leonel Mattos, market intelligence analyst at StoneX.
“This combination of fewer interest rate cuts in Brazil and the continuation of the expected interest rate cut in the United States ends up favoring the Brazilian interest rate differential, and Brazilian assets become more attractive, with the expectation of a greater flow of foreign investments.”
On Wednesday, BC cut the Selic for the sixth consecutive time by 0.50 points, bringing it to 10.75% per year.
The Federal Reserve left its base rate unchanged on Wednesday and the U.S. central bank’s updated projections showed that 10 of 19 Fed officials still see interest rates falling by at least 0.75 percentage points by the end of this year. , first a median view set in December and maintained despite recent stronger-than-expected inflation.
The greater the interest rate differential between Brazil and the United States, the more attractive the real becomes for use in “carry trade” strategies. In them, loans are given in a low-interest rate country and money is invested in more profitable markets, so that profits are made from the difference in rates.
Source: Terra
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