The Brazilian real weakened to 5.21 per USD in mid-August, its lowest level in more than a month, as investors continued to scale back their exposure to Brazilian assets. Markets are increasingly pricing in uncertainty surrounding the next government and its economic agenda. Growing doubts that the incoming administration will be able to deliver a credible and consistent fiscal adjustment are feeding into a higher risk premium across Brazilian asset prices.
These concerns have intensified as the elections draw nearer and foreign capital outflows accelerate. Domestic banks and brokerages have also pared back their positions in the real, unwinding currency exposures in favor of other emerging-market currencies. The move gathered pace after JPMorgan adopted a more cautious stance on Brazil, downgrading its recommendation on Brazilian assets from overweight to neutral, citing the Selic easing cycle, the electoral outlook, and worsening credit conditions.
