Brazilian Real Tumbles Amid Election Rumors

The Brazilian real appreciated past R$5.29 per US dollar toward May 2024 highs as markets absorbed the third quarter GDP print alongside a broadly softer US dollar.

GDP rose 1.8% year on year in the quarter, the softest expansion in over three years, a clear sign the economy is cooling and increasing the probability the central bank will begin easing from near two decade high policy rates in the months ahead.

That cooling is visible across goods and services even as the central bank’s governor has warned the slowdown remains gradual.

At the same time a tight labour market and sustained real wage gains keep household income and tax receipts resilient which moderates near term fiscal pressure and reduces the chance of abrupt policy shifts.

At the same time, the US dollar remained broadly subdued amid near certainty the Federal Reserve is due to cut rates next week, amplifying Brazil’s carry trade advantage and providing a solid footing for the real.

The Brazilian real strengthened past 5.3 per US dollar, moving toward its May 2024 highs last tested in November as the US dollar weakened on near certain bets of a Fed rate cut in December after mounting signs of a softer US labor market.

Meanwhile, Brazil reported unemployment at 5.4% in the quarter to October and an unemployed population near 5.9 million while average real wages rose to R$3,528, a mix that strengthens household incomes and tax revenues and eases short term fiscal pressure.

With employment at historical lows and labour income rising, domestic demand should stay resilient even as the Selic rate remains at 15%, which preserves Brazil’s interest rate premium and keeps carry flows into local assets and the currency.

The Brazilian real strengthened to about 5.33 per US dollar after IBGE data showed unemployment fell to a record low 5.4% in the quarter to October, reinforcing expectations the Brazilian central bank will keep policy tight.

The unemployed population dropped to roughly 5.9 million while average real wages hit a record R$3,528, a combination that supports household income and tax receipts and reduces near-term fiscal strain.

With employment at historical lows and labour income rising, domestic demand is likely to stay resilient even with the Selic interest rate at 15%, which lowers the probability of an abrupt or premature easing and helps preserve Brazil’s large interest rate premium that attracts carry flows.

Finally global markets have been repricing US policy easing pressure on emerging market currencies, with dealers now placing a high 80s probability on a 25 basis point Fed cut in December.

The Brazilian real appreciated toward 5.33 per US dollar, recovering from one-month lows of 5.40 on November 21st as a more dovish US Fed outlook increasingly outweighed local policy expectations.

A rapid repricing of US policy after Fed commentary pushed the odds of a December cut to over 80%l, while Brazil’s wide interest rate cushion with the Selic at 15% continues to attract carry oriented flows.

Domestic data and financing flows have reinforced the move, with the Focus Bulletin trimming the 2025 IPCA to 4.45% and October foreign direct investment of about US$10.94bn comfortably covering the US$5.12bn current account deficit for the month, a mix that reduces the need for exchange rate adjustment.

Central Bank president Galípolo’s repeated insistence that policy remains restrictive and that any easing would be gradual and likely in early 2026 further reassures investors that the interest rate premium will not evaporate abruptly.

The Brazilian real strengthened to about 5.36 per US dollar, recovering from one-month lows of 5.40 on November 21st as a more dovish US Fed outlook outweighed local policy expectations.

A rapid repricing of US policy after Fed comments lifted the odds of a December cut to roughly 80% and that lower dollar tone directly eased pressure on the real, while Brazil’s wide interest rate cushion with the Selic at 15% continues to draw carry oriented capital.

Domestic indicators reinforced inflow dynamics with the Focus Bulletin trimming the 2025 IPCA to 4.45% and October foreign direct investment of about US$10.94bn, the highest since 2022.

Central bank president Galípolo has emphasised that policy remains restrictive and that any easing would be gradual and likely in early 2026, a stance that reassures investors the interest rate premium will not vanish abruptly and supports the currency’s rebound.

The Brazilian real slid toward 5.40 per US dollar, retreating from May 2024 highs as expectations of an eventual dovish turn at the central bank, persistent fiscal worries and a firmer US dollar weighed on the currency.

The Finance Ministry trimmed 2025 growth and inflation forecasts, underscoring a softer profile that will dent export momentum and tax receipts.

October inflation has eased enough that markets now price the prospect of rate cuts earlier in 2026, narrowing Brazil’s yield edge.

The central bank left the Selic at a historically high 15% but signalled a pause rather than further tightening, which reduced the domestic policy premium.

Ongoing concerns about public debt have kept risk premia elevated and limited demand for the real despite recent external policy developments.