FX.co ★ Brazilian Real Approaches Near 1-Year High

The Brazilian real advanced beyond 5.42 per US dollar, edging closer to its nearly one-year high of 5.39 observed on August 12th. This appreciation was driven by a sharp decline in the dollar following remarks by Federal Reserve Chair Jerome Powell at the Jackson Hole symposium, suggesting a potential interest rate cut in September. The weakened dollar, combined with Brazil's still-significant interest rate differential—owing to the Selic rate holding at 15%—has enhanced the short-term attractiveness of the real for carry trades, thereby attracting capital back to local markets. Nonetheless, political and fiscal uncertainties continue to overshadow the economic outlook. A Supreme Court decision asserting that foreign laws do not have jurisdiction domestically has been interpreted as intensifying the Brazil-U.S. tensions linked to sanctions derived from the Magnitsky Act and the U.S.'s 50% tariff imposition on Brazilian goods. This has introduced a degree of legal uncertainty, maintaining elevated risk premiums.