FX.co ★ Brazilian Real Appreciates After Unemployment

The Brazilian real appreciated to approximately 5.33 against the US dollar following data from IBGE, which indicated a decline in unemployment to a historic low of 5.4% for the quarter ending in October. This development strengthens the belief that the Brazilian central bank will maintain its stringent monetary policy. The number of unemployed individuals decreased to nearly 5.9 million, while average real wages rose to a record R$3,528. This combination boosts household income and tax revenues, subsequently alleviating short-term fiscal pressure. With employment at unprecedented levels and rising labor income, domestic demand is expected to remain robust even with the Selic interest rate set at 15%. This diminishes the likelihood of any sudden or premature rate cuts and helps sustain Brazil’s substantial interest rate differential, which continues to attract carry trade investments. Additionally, global markets are adjusting to the prospect of eased US policy pressures on emerging market currencies, with traders now assigning a probability in the high 80s to a 25 basis point reduction by the Fed in December.