Dollar rounds stability with favorable flow of investments and interest on the radar

O dollar fell 0.05%, quoted at R$ 5.075, around 9:15 am this Monday (29), hovering around stability, with the real still benefited by an inflow of foreign investments supported by the positive market expectations for commodity exporting countries.

However, the US currency is benefited by changes in investors’ bets in relation to US interest rates after the speech by the President of the Federal Reserve Jerome Powell at the Symposium of Jackson Hole .

Powell highlighted that the September interest rate hike will depend on data on the economy, but that the July figures alone are not enough to indicate a drop in inflation in the United States .

He reinforced that the country’s monetary policy will need to be restrictive for longer to bring prices down.

Powell’s comments were considered harsh in relation to the inflation , reinforcing bets on an interest rate hike of 0.75 percentage point in September, which would be the third consecutive interest rate hike of this magnitude. The scenario is good for the dollar, but bad for stock markets around the world.

The current split in the market revolves around the next monetary policy meeting in September.

For some, the central bank will be less aggressive, with an increase of 0.5 percentage point, to impact less the country’s economy. Others point out that the economy is still buoyant, especially the job market, allowing for a more aggressive increase of 0.75 pp

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 October 3, 2022.

On Friday (26), the dollar fell 0.62%, to R$ 5.079, with a decline of 1.73% in the week. already the Ibovespa had a drop of 1.09%, to 112,298.86 points, ending the week with a high of 0.73%.

overall feeling

The global risk aversion of investors, triggered by fears about a possible generalized economic slowdown due to a series of interest rate hikes around the world to contain record levels of inflation, has varied in intensity depending on expectations about the interest rate hike cycle in the United States. United.

The process of raising the US rate continued in July with a new increase of 0.75 percentage point. However, the Federal Reserve has signaled that it could make smaller hikes as the country’s economy already shows signs of slowing, seeking to avoid a recession.

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

Investors are also monitoring the situation of China’s economy, which is also showing signs of a slowdown linked to a series of lockdowns in relevant cities. The expectation is that the Chinese government will intensify an effort to stimulate the economy, while facing difficulties to reverse a situation of low consumption by the population, which impacts the country’s 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.

Even so, the Ibovespa and the real found room for recovery with an improvement in the mood of the market, although they could still be harmed if there is a resumption of pessimism.

*With information from Reuters