Dollar beats BRL 5.60 with global economic worsening and higher fiscal risk

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     Porto Alegre, August 25, 2020 – The relief with the maintenance of the presidential veto to increase the public sector pay rise until 2021 was short-lived. Worse-than-expected economic data end up weighing against the forex market, which is still quite fragile by the Brazilian fiscal scenario. So, the dollar rose again, closing Friday at BRL 5.6080 (+0.91%). For the week, it accumulated gains of 3.26%.

     The PMI in Europe and Japan was below expectations, frustrating investors and helping strengthen the dollar. But higher-than-expected applications for unemployment aid in the United States ended up reminding the market that global activity is still slow. This reinforces the doubts left by the Fed’s minutes, which indicated concern over the pace of economic recovery in the U.S. post-pandemic.

     The fiscal risk in Brazil with a possible breach of the spending ceiling also helped support the dollar against the real, which made the Central Bank enter the market in the last few days. On the radar, the fiscal anchor, and the reform agenda. The market understands there is less effort on the part of both the government and Congress towards greater fiscal tightening. The question is: How will Guedes reconcile electoral demand with fiscal austerity?

The U.S. elections are expected to gain more and more space, which must bring volatility and more uncertainty to markets. The stalemate over the emergency aid package and Trump’s anti-China rhetoric already weigh on the mood of the markets and increase risk aversion.

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