The Brazilian real depreciated to around 5.38 per US dollar, its weakest level since briefly hitting 5.60 in the immediate aftermath of President Lula’s runoff victory over Flávio Bolsonaro. Market attention remains firmly on fiscal policy, especially the new government’s commitment to containing expenditure and stabilizing public debt, which has expanded significantly in recent years.
Concerns about the absence of a credible fiscal consolidation plan have grown amid uncertainty over key appointments—most notably the Finance Ministry—and over the broader fiscal strategy in Lula’s upcoming term. By contrast, investors had perceived a Bolsonaro administration as more inclined to restrain public spending, a stance seen as crucial for creating room to lower interest rates.
Brazilian assets had rallied after the first-round vote, when Bolsonaro outpaced Lula, reflecting those expectations. At the same time, the US dollar has strengthened against a basket of major currencies, supported by stronger‑than‑expected US GDP growth and a pickup in PCE inflation, as Federal Reserve officials evaluate incoming data before determining their next policy steps.
