Dollar hovers around stability after appreciation, with foreign and fiscal risk on the radar

O dollar rose 0.09%, quoted at R$ 5.326, around 9:30 am this Monday (4), hovering around stability and alternating between positive and negative variations. On the one hand, the US currency operates downwards abroad, opening room for a correction in the real after having a strong devaluation. However, fiscal risks in Brazil and global fears about a possible recession still favor the dollar.

THE China announced new lockdowns to fight a new outbreak of Covid-19, this time in Anhui province. The decision reinforces fears about the country’s economic situation, which is experiencing a global impact slowdown.

There is also pessimism about the economy of United States with increasing projections of recession amid rising interest rates in the country. The prospect of a deteriorating world economy increases risk aversion, benefiting the dollar and withdrawing investments from markets considered risky.

At the same time, the market is attentive to the processing of the Fuels PEC in the House, after approval in the Senate. With estimated expenditures of around R$ 41 billion , she envisions declaring a state of emergency to justify off-the-record spending and expand social benefits. The measure was not well received by the market, and has led to a withdrawal of investments due to the possibility of uncontrolled spending.

On Friday (1st), the dollar rose 2.46%, to R$5.112, ending the week with an appreciation of 1.33%. already the Ibovespa fell 2.73% to 102,598 points and a weekly gain of 0.29%.

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 high interest rates 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 again favored commodity exporters and relieved some of the pressure on the real, but new restrictions were announced.

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 prospect of strong monetary tightening abroad once again harmed the Brazilian market. .

*With information from Reuters