Dollar retreats with a more favorable external scenario

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     Porto Alegre, August 31, 2020 – The Fed’s new monetary policy strategy, which uses average inflation, points to the maintenance of low interest rates for a long period in the United States. This led to a sharp decline in the dollar, especially against emerging currencies. Of course, it influenced local traders, who dismantled part of their protection, which made the currency fall from its high. The dollar closed Friday at BRL 5.4170 (-2.83%), accumulating losses of 3.40% over the week.

     In line with the good external mood, domestic investors let their guard down a little, which also influenced the dollar’s retreat against the real. Highlight on the transfer of BRL 325 billion from the Central Bank (CB) to the National Treasury. Rumors grow that any loosening of the spending limit for 2021 would be accompanied by structural reforms to contain spending and raise productivity. Such compensation would be positive.

     In any case, the fiscal anchor and the reform agenda remain on the radar. The market still understands there is less effort on the part of both the government and Congress towards a greater fiscal tightening. Therefore, attention remains to the relationship between Bolsonaro and Guedes, and also on the way the Economy Minister will reconcile the electoral demand with fiscal austerity.

     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 the U.S.-China relationship must keep weighing on the mood of the market. The medium-term focus remains on the development of a vaccine against COVID-19.

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