Dollar goes up last week with increasing fiscal risk in Brazil

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     Porto Alegre, August 18, 2020 – The departure of top economic officials, in the face of discontent with the progress of privatizations and reforms, set the tone for business in the forex market over the week. Besides fears that the reform agenda will not go on, there is also a growing fear that the government will again break the spending ceiling in 2021, when most countries must hold back their expenses. This would significantly increase Brazil’s fiscal fragility. What worries the financial market most is the change in economic directions. On the radar, of course, is the economy minister Paulo Guedes, who is increasingly lonely.

     The U.S. currency closed last Friday at BRL 5.4310, up 1.15%. During the week, it was practically stable, with gains of 0.35%. The stalemate over the U.S. economic stimulus package helped support the dollar. Struggle between the United States and China, and the U.S. elections are making markets more cautious, which is reflected in the dollar’s high. On the other hand, the advance of the vaccine on several fronts fills global agents with hope. Investors still assimilate the positive U.S. employment data, and the second quarter’s GDPs.

     The Selic rate curve tends to change its dynamics. The impression is that new cuts in interest rates, should they occur, must be more widely spaced and linked to the evolution of productive activity and inflation. The mismatch between the strength in the stock market and the fragility of economic activity also raises concern and can lead to realignment.

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