The Brazilian real weakened to its lowest level in more than two weeks, trading around 5.60 per USD on November 10th, pressured by expectations of a narrowing interest-rate differential between the United States and Brazil. Stronger-than-expected October inflation in the US reinforced bets on further Federal Reserve rate hikes, which would erode the real’s carry-trade appeal by reducing the yield advantage of Brazilian assets.
The currency is also burdened by domestic headwinds, including a challenging outlook marked by weaker growth, elevated inflation, and persistent fiscal uncertainty following President Lula’s reelection.
On the monetary policy front, the minutes from the Copom meeting repeated the previous statement’s hawkish stance, underscoring that unanchored inflation expectations demand tighter monetary conditions for an extended period. The Central Bank of Brazil (BCB) left the Selic rate unchanged at 13.75% at its latest meeting, effectively pausing its easing cycle. In the minutes, policymakers highlighted the impact of supply shocks on prices, ongoing demand-side inflationary pressures, and noted that the current slowdown in economic activity could deepen.
