In new escalation, dollar flirts again with BRL 5.50

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The dollar went up again, reflecting the market’s concern over the increase in cases of COVID-19 in the United States and the resumption of measures of social distancing in some regions. This ends up undermining the optimism of a rapid economic recovery. The fear of a second wave of the coronavirus pandemic increases risk aversion and the search for protection with the dollar worldwide. In Brazil, besides the difficulty in controlling the pandemic, there is also the risk of increasing fiscal fragility, given the possibility of easing the spending ceiling.

In the forex market, the Central Bank had to act by putting USD 502.50 million into the market to calm down moods and prevent the currency from outdoing BRL 5.50. Even so, the U.S. currency closed Friday at BRL 5.46 (daily gain of 2.49%), for the third consecutive day. For the week, the dollar rose 2.6%.

There was concern last week over the bad data released by the IMF. The fund raised the deficit for the global economy to 4.9% in 2020, above the 3% decline projected in April. The COVID-19 pandemic had a worse-than-expected effect in the first half of this year, explaining the downward revision. The IMF also projects a 5.4% growth in the global economy in 2021, against 5.8% in April.

For Brazil, the fund projects a fall in activity by 9.1% this year (5.3% in the April projection). The difficulty of Latin American economies in controlling the coronavirus explains the growing pessimism. On the other hand, the IMF raised the growth of the Brazilian economy to 3.6% in 2021 (against 2.9% in April).

In Brazil, after confirming an 0.75% cut in prime interest rates, bringing the Selic to 2.75% a year, the minutes of the meeting brought a more cautious stance in relation to the future interest rate. This made many traders believe that the monetary easing is either over or there is room for only one more residual adjustment of 0.25% point in the rate, bringing the Selic to the bottom at 2% per year. The combination of global economic uncertainty with domestic political fragility supports the dollar.