Dollar operates in fall with market attentive to interest rate decisions in Brazil and the USA

O dollar fell 0.59%, quoted at R$ 5.104, around 9:17 am this Wednesday (15), with cautious investors awaiting interest rate decisions in Brazil and the United States, which will conclude their monetary policy meetings.

The expectation is that the Federal Reserve it’s the central bank raise their interest rates by 0.5 percentage point, even with the two countries at different times in their currency cycles. However, this week, US investors began to project a rise of 0.75 pp, contrary to the signs of the authorities of the municipality.

Thus, investors’ attention will be on the signals after the meetings. In the Brazilian case, if the cycle will end at 13.25% per year, and, in the North American case, if the cycle will pause in September or continue and if the Fed will change its position against a rise of 0.75 percentage point in interest.

It is worth noting that on Thursday (16) there will be no operations in Brazil due to the Corpus Christi. In this way, experts interviewed by the CNN Brasil Business stated that interest rates will be priced in the market on Friday (17).

In this session, the Central Bank will auction up to 15 thousand traditional foreign exchange swap contracts for the purpose of rolling over the maturity date of August 1, 2022.

On Tuesday (14), the dollar rose 0.43% to R$5.134. already the Ibovespa fell 0.52% to 102,063.25 points, the lowest score since January 10.

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 a recession, but signaled at least two more hikes of 0.5 pp.

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.

At the end of May and beginning of June, the view that the municipality would not be so aggressive in the cycle and the end of lockdowns in important cities in the China alleviated fears and helped the Ibovespa and the dollar to recover.

In recent weeks, however, the scenario has changed. THE may inflation from the United States signaled a more negative picture, reinforcing higher terminal interest bets. The European Central Bank (ECB) signaled interest rate hikes from July onwards, while China faces a new increase in Covid-19 cases on fears of new restrictions and fiscal risk in Brazil has regained strength.

As a result, the combination of a weakened domestic scenario and the prospect of strong monetary tightening abroad once again harmed the Brazilian market.

*With information from Reuters