Dollar retreats on optimism after bigger-than-expected interest rate cut in China

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THE dollar fell 0.12%, quoted at R$ 4.910, around 9:19 am this Friday (20), reflecting greater optimism on the part of investors after the China announce a larger-than-expected cut in benchmark mortgage interest rates in an effort to stimulate the country’s economy.

The measure tends to benefit countries that export to China, in the case of Brazil, by generating an increase in demand for commodities and high product prices. At the same time, the effort alleviates global risk aversion by reducing fears of a possible recession or strong deceleration in the world’s largest economies.

In this trading 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 July 1, 2022.

On Thursday (19), the dollar 1.24%, at R$ 4.919. already the Ibovespa rose 0.71% to 107,005.22 points.

global pessimism

The most recent instigator of global risk aversion was the interest rate hike in the US , announced by the Federal Reserve on May 4. Despite discarding hikes of 0.75 pp or a risk of recession, the municipality signaled at least two more hikes of 0.5 pp

Higher interest rates in the United States attract investments for the fixed income of the country due to its high security, but it harms the stock exchanges around the world, including the North American ones.

Along with a series of interest rate hikes around the world, lockdowns in china to try to contain Covid-19, projections of a strong economic slowdown and even the risk of a global recession have increased, hurting markets and increasing investor risk aversion.

The growth of exports Chinese companies even slowed down to single digits, the weakest level in almost two years, while imports barely changed in April, amplifying concerns.

However, with the prospect that these restrictions could be lifted between May and June, Chinese demand is expected to return to previous levels, which would once again favor commodity exporters and alleviate some of the pressure on the real.

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*With information from Reuters

Source: CNN Brasil

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