Dollar hovers around R$5.40 with currency weakness abroad, but risks remain on the radar

O dollar fell 0.25%, quoted at R$ 5,408, around 9:30 am this Thursday (7), with the real having a slight recovery in a day of weakness of the US currency abroad. However, domestic and international risks remain on the radar.

The market still digests the minutes of the last Federal Reserve meeting . In it, the central bank of the United States raised interest rates by 0.75 percentage point for the first time since 1994 to fight inflation.

The text signaled that the next meeting should have a rise of 0.5 pp or 0.75 pp, depending on inflationary data, but the tone was read as less aggressive than expected by the market, partially reducing global pessimism, as does not mention a risk of recession in the country.

At the domestic level, the market continued to pay attention to the processing of the Benefits PEC , passed in the Senate and which is now being analyzed in the Chamber. The text created a fiscal risk, as it has estimated expenditures of around R$ 41 billion and foresees declaring a state of emergency to justify out-of-ceiling expenses and expand social benefits.

The measure was not well received by investors, and leads to a withdrawal of investments due to the possibility of uncontrolled spending.

On Wednesday (6), the dollar appreciated 0.63%, at R$ 5.423. Already Ibovespa ended up 0.43%, at 98,718.98 points.

overall feeling

Investors still maintain a strong global risk aversion triggered by fears about a possible general economic slowdown due to a series of interest rate hikes around the world to contain record levels of inflation, which would harm many types of investments.

The main cause for this aversion is the cycle of interest rate hikes in United States with the most recent increase announced by the Federal Reserve on May 4th. The autarchy has already ruled out 0.75 percentage point hikes in interest rates, or a risk of taking the country’s economy into recession, but signaled at least two more 0.5 pp hikes.

Higher interest rates in the United States attract investments to the country’s fixed income due to its high security and favor the dollar, but harm bond markets and stock exchanges around the world, including the US.

At the same time, the market follows the data on the country’s economy to understand how aggressive the Fed could be in the process.

THE confirmation of the contraction of the US economy in the first quarter, for example, reinforced the view that the autarchy should not be as aggressive in raising interest rates as expected. already the may inflation signaled a more negative picture, reinforcing higher terminal interest bets.

On the other hand, with the end of lockdown in the city chinese from Shanghai and easing restrictions in the capital Beijing, Chinese demand was expected to return to previous levels, which once again favored commodity exporters and relieved some of the pressure on the real, but new restrictions were announced, reversing the scenario.

The Ibovespa and the real found room for appreciation between the end of May and the beginning of June, but the combination of a worse domestic scenario, with the return of a fiscal risk, and the perspective abroad of strong monetary tightening once again harmed the Brazilian market.

*With information from Reuters