FX.co ★ Brazilian Real Appreciates to 1-Month Highs

The Brazilian real has appreciated beyond 5.37 against the US dollar, reaching its highest level in over a month. This appreciation comes as recent domestic price and labor statistics have bolstered the central bank's commitment to a restrictive monetary stance, effectively countering the persistent strength of the US dollar. In December, headline inflation eased to 4.26% from 4.46% in November, marking the lowest rate since August 2024 and slightly under market expectations. However, core inflation measures continue to indicate solid price pressures in the services sector, justifying the continuation of tight monetary policies. Concurrently, a record low unemployment rate highlights the labor market's resilience, in spite of the elevated real cost of borrowing, thereby aiding domestic demand and reinforcing policy credibility. With the Selic rate maintained at 15% and 10-year yields remaining in double digits, Brazil stands out as a particularly appealing destination for carry trade among emerging markets. This attractiveness persists even as the US dollar benefits from robust US economic activity and diminished prospects for immediate Fed easing.