On June 12, the dollar closed below R$5.40, following its highest point in 18 months. Concerns over Brazil’s fiscal health had driven the increase.
However, comments from President Luiz Inácio Lula da Silva and his ministers about fiscal balance reversed the trend.
Investors also responded to U.S. inflation data. The Producer Price Index (PPI) for May showed a deflation of 0.2%, falling short of the expected 0.1% increase.
Annually, the PPI rose by 2.2%, below the anticipated 2.5%. This came a day after lower-than-expected consumer inflation and steady interest rates.
By the end of the day, the spot dollar fell by 0.73% to R$5.366 for buying and R$5.367 for selling.
Dollar Drops Below R$5.40 as Lula Promises Fiscal Discipline. (Photo Internet reproduction)
The first maturity future contract dropped by 0.66% to 5,376 points around 5:30 PM. The Central Bank sold all 12,000 traditional currency swap contracts to roll over August maturities.
Dollar Rates:
Commercial Dollar:
Purchase: R$5.366
Sale: R$5.367
Tourism Dollar:
Purchase: R$5.397
Sale: R$5.577
Initially, the dollar attempted gains against the real as investors remained wary of Brazil’s fiscal condition.
However, the rates stabilized, even though the dollar was rising against other major currencies.
From late morning to early afternoon, the dollar weakened more significantly against the real. This aligned with a drop in interbank deposit (DI) rates.
Positive statements from Lula and his ministers spurred this change. In Switzerland, Lula defended Finance Minister Fernando Haddad amidst rumors of his weakening position.
Lula praised Haddad’s efforts to find compensation alternatives for tax relief affecting 17 economic sectors and small municipalities.
This tax measure had been returned to the executive branch by Senate President Rodrigo Pacheco.
Lula mentioned a pending Supreme Court decision on the matter. If no compensation agreement is reached within 45 days, the tax relief will end, as Lula initially wanted.
Lula emphasized that the responsibility now lies with the Senate and the business community. Haddad stated that the ministry would help the Senate analyze measures to offset payroll tax relief.
Vice President and Development Minister Geraldo Alckmin called the recent dollar rise “momentary,” expressing confidence in a rate decline.
By 3:12 PM, the spot dollar had hit a low of R$5.3628 (-0.76%). Internationally, the dollar rose against major currencies.
However, the real, the Mexican peso, and the Turkish lira gained strength against the dollar.
Around 5:30 PM, the dollar index, which measures the dollar against a basket of six currencies, increased by 0.53% to 105.203.
This shift matters as it reflects Brazil’s economic instability and the global response to U.S. inflation trends.
Investors must watch these developments to understand currency fluctuations and economic policies.
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