FX.co ★ Brazilian Real Hits 1-Month High After BCB

The Brazilian real advanced towards 5.3 against the US dollar, reaching its highest point in a month. This strengthening came after the central bank decided to maintain the interest rate at 15%. The bank's cautious and somewhat hawkish statement increased the difficulty of executing near-term rate cuts, thereby retaining Brazil’s carry trade advantage and reducing the risk premium associated with the currency. Additionally, a slight downward adjustment in the inflation forecast, coupled with the confirmation that the 15% rate aligns with disinflation objectives, reflected progress without compromising credibility and helped narrow exchange rate premia. This monetary policy stance coincided with significant net foreign exchange inflows on November 5, as international investors moved into local currency assets and derivatives, purchasing reais to support these positions. Concurrently, the US dollar declined from its recent highs as the market reassessed probabilities of Federal Reserve interest rate cuts and decreased demand for the dollar as a safe-haven currency, thus lessening an external obstacle for the real's appreciation.