By Luana Maria Benedito
SAO PAULO (Reuters) – The dollar closed lower against the real on Monday, following an international recovery in investors’ appetite for risk in the wake of the reversal of a tax cut plan in the United Kingdom, despite fears about monetary tightening in the United Kingdom. US central bank remained on the radar.
The spot US currency fell 0.41%, at 5.3014 reais on sale, after retreating to 1.31% at the lowest level of the day, at 5.2537 reais. The dollar marked its first daily decline in a week.
On B3, at 17:08 (GMT), the first-maturity dollar futures contract was down 0.53% to 5.3125 reais.
Guilherme Esquelbek, an analyst at Correparti Corretora, said the depreciation of the dollar both in the domestic market and abroad was a reflection of global demand for risk in the wake of news that the British government will reverse much of a fiscal plan announced at the end of September.
Britain’s new finance minister Jeremy Hunt on Monday scrapped most of the £45bn in tax cuts not offset by the government proposed by Kwasi Kwarteng, his predecessor. Kwarteng was sacked last week after his controversial fiscal plan sent waves of stress through the British bond market, tainting global sentiment.
The index that compares the US currency to a basket of six strong rivals was down 0.85% this afternoon, making room for several emerging or commodity-sensitive currencies to appreciate. South African rand and Australian dollar, important currency pairs, advanced more than 1% on the day, while the Mexican peso and Peruvian sol rose more timidly, from 0.2 to 0.4%.
Shares listed on major exchanges also posted strong gains on Monday, as yields on sovereign bonds in major economies fell. [.NPT] [.EUPT]
In addition to reflecting the British news, the movement of the dollar depreciation and the advance of shares this Monday was attributed by the markets to a correction, after strong global risk aversion last Friday, amid fears about the persistence of the inflation in the United States and its impact on the already aggressive monetary tightening path of the Federal Reserve, the country’s central bank.
The Fed has already raised interest rates by 3 percentage points since March this year.
Goldman Sachs said in a recent report that “the dollar has a lot going for it right now” as US economic data has been relatively resilient and there is a strong global call for safety in an unstable risk environment, while at the same time that “it is difficult to find a candidate to replace” the US currency.
In fact, the dollar index against strong pairs soars more than 17% in the accumulated of 2022, and the external strengthening of the currency has been one of the main responsible for the moments of depreciation of the real in the Brazilian market.
However, the US currency is still down 4.9% against the Brazilian currency so far this year, with the high level of the Selic rate, currently at 13.75%, serving as a cushion for the real by driving the redirection of resources to the domestic fixed income market, according to experts.
Robin Brooks, chief economist at the Institute of International Finance, also highlighted in a Twitter post the good performance of the local economy compared to global peers. While fears of recession haunt most developed countries, several financial institutions have improved their forecasts for Brazil’s Gross Domestic Product (GDP) growth in 2022.
“The exchange rate is relative and relative forces favor Brazil. Our fair value remains at 4.50 reais to the dollar,” Brooks said, referring to the exchange rate he believes is consistent with the country’s macroeconomic fundamentals.
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