Dollar trades higher cautiously ahead of U.S. and Brazil rate decisions

O dollar rose 0.97%, quoted at R$ 5.215, around 9:20 am this Tuesday (20), with a recovery after a strong devaluation the day before, as investors increase their aversion to risk while waiting for the definitions at the interest rate meetings in the United States It’s in Brazil.

the meeting of Federal Reserve should give new signals about the next steps in the US interest rate hike cycle. The market started to project a more aggressive posture after an August inflation data that came above expectations.

A 0.75 percentage point rise in interest rates in September is still the majority opinion of investors, but the data opened the way for bets on an even greater increase, of 1 pp. In addition, it led to bets of a tougher cycle, with higher in November and December. As a result, the scenario became more positive for the US currency.

Brazil will also define its interest rate, with a meeting of the Monetary Policy Committee (Copom ).

The market’s expectation is that the Selic is maintained at 13.75% with the end of the upswing cycle, even after the statements of local government officials opened the way for bets on a final rise of 0.25 pp

O central bank will hold an auction of up to 13,760 traditional foreign exchange swap contracts in this trading session for the purpose of rolling over the maturity date of October 3, 2022.

On Monday (19), the dollar closed down by 1.79%, quoted at R$5.166. already the Ibovespa rose 2.33% to 111,823.89 points.

overall feeling

Investors’ global risk aversion, 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 also monitor the state of the economy in China which also shows 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.

Even so, the Ibovespa and the real recently found room for recovery with an improvement in the mood of the market, supported by the positive outlook for commodities a stronger domestic economic scenario and a reduction in the perception of risks in relation to the elections.

This picture, however, is limited depending on the degree of risk aversion abroad.

*With information from Reuters