Dollar operates higher with international caution ahead of interest rate decisions

O dollar rose 0.41%, quoted at R$5.442, around 9:30 am this Wednesday (20), benefiting from an increase in risk aversion and caution ahead of interest rate decisions in the euro zone and the United States.

Next Thursday (21), the European Central Bank (ECB ) should start the cycle of interest rate hikes in euro zone but it is not yet clear whether the municipality will make an increase of 0.25 or 0.5 percentage point.

We already United States O Federal Reserve meets next week to make the fourth consecutive rise in interest rates. The market expectation is for an increase of 0.75 percentage point, already indicated by directors of the autarchy even with a higher-than-expected May inflation.

The global movement of high interest rates generates caution and risk aversion among investors, as it fuels bets on a generalized economic recession and leads to the withdrawal of investments from markets considered risky, as is the case of Brazil.

In addition, the fiscal risk high in Brazil continues to harm the real and alienate investors. President Jair Bolsonaro told the CNN what do you want maintain Aid Brazil at R$ 600 if reelected, indicating continued spending increases and a weakness in the spending ceiling.

On Tuesday (19), the dollar fell 0.12%, to R$ 5.419. already the Ibovespa rose 1.37% to 98,224.80 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 Stateswith the most recent increase announced by the Federal Reserve on May 4th. The increase was 0.75 percentage point, the biggest since 1994, and new highs of the same magnitude were not discarded .

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.

However, the country’s fight against highest inflation in 41 years raises growing fears of a recession in the world’s largest economy due to the need for aggressive monetary tightening. The risk leads to an aversion to risk, favoring the dollar and harming assets considered risky, in the case of the Brazilian market.

On the other hand, new restrictions in cities in the China were announced in early July, reversing a scenario of optimism about a resumption of the country’s economy after months of lockdown in Shanghai and Beijing. The picture reinforces fears of a Chinese economic slowdown and consequent drop in demand for commodities.

In the domestic scenario, the Benefits PEC which creates or expands social benefits with an estimated cost of R$ 41 billion, was poorly received by the market, as it reinforces the fiscal risk by bringing new spending above the ceiling.

With the combination of adverse internal and external environments, the withdrawal of investments harms the Ibovespa and favors the dollar against the real.

*With information from Reuters