By Luana Maria Benedito
SÃO PAULO (Reuters) – The dollar fell more than 2% against the real this Friday, after US employment data were in line with expectations and the conciliatory tone of President Luiz Inácio Lula da Silva at his first ministerial meeting, the which led the US currency to completely reverse the gains it had accumulated in the first week of the new government.
The US currency in sight closed down 2.17%, at 5.2364 reais on sale, the biggest daily percentage devaluation since October 31 (-2.57%) and the lowest closing level since December 26 (5.2105).
Added to the 1.81% drop in the dollar in the last session, this Friday’s fall left the US currency 0.79% below last week’s closing level of 5.2779 reais, offsetting the jump of more of 3% registered in the accumulated of the first two business days of the new government.
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“We are seeing this partial dismantling of long dollar positions at the beginning of the year, and today’s ministerial meeting undoubtedly contributed to extending the local relief already started yesterday,” Fernando Bergallo, director of operations at FB Capital, told Reuters.
In Brasilia, Lula opened the meeting with ministers by stating that his government’s commitment is to unify the country, and not to put an end to divergences, and stressing the importance of a good relationship between the Executive and Congress. He also said that it is possible for the economy to grow responsibly.
His apparently more conciliatory tone came after several of his ministers appeased the markets this week with signals that the government will not alter structural reforms and other measures adopted by previous administrations.
“It seems to me that the market’s initial reaction (to the new government) was exaggerated, in a clear movement of caution, but which was not supported afterwards; I believe that the new government is ‘trying to speak the language of the market’, although criticisms about the spending ceiling end up contributing to a certain skepticism on the part of investors,” added Bergallo.
In addition to the moderate tone adopted by Lula, Leonel Mattos, market intelligence analyst at StoneX, said that this Friday’s ministerial meeting showed the “efforts of the new Lula government to align communication between his ministers, his government, and avoid that there are noises that generate unnecessary volatility”, which contributed to the fall of the dollar.
The international scenario also played in favor of the real, after the US Department of Labor reported that job creation outside the country’s agricultural sector totaled 223,000 last month, in line with expectations from the markets and below the data from November. Economists polled by Reuters had forecast the creation of 200,000 jobs, with estimates ranging from 130,000 to 350,000.
“For me, the ‘payroll’ announced in recent months shows that work in the US is still heated, but it shows signs of deceleration, which are important and sufficient for rethinking the rise in interest rates, although we already know that the contractionary cycle will continue for longer,” said Carlos Vaz, CEO of Conti Capital.
“In summary, this means that it is welcome data for the fight against inflation, and very encouraging for those who want to see good conditions in the labor market, despite the weakening of economic activity.”
Further fueling global investors’ risk appetite, US services activity contracted for the first time in over two and a half years in December, amid weakening demand, while the pace of rising prices paid by companies slowed. considerably, providing further evidence that inflation is cooling off.
The more aggressive the US Federal Reserve is in its cycle of interest rate hikes, the more the dollar tends to benefit globally, as investors redirect resources to the US fixed income market. But the opposite is also true, so that the dollar index against a basket of strong pairs fell more than 1% this afternoon, opening space for the appreciation of other currencies.
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