FX.co ★ Brazilian Real Strengthens to 8-Month High

In June, the Brazilian real appreciated beyond 5.54 per USD, marking its strongest position in eight months, spurred by a weaker US dollar, clearer domestic fiscal strategies, and easing global trade tensions. A lower-than-anticipated US inflation rate, with May’s Consumer Price Index rising by just 2.4% year-on-year, has prompted expectations of earlier Fed rate cuts and led to reduced yields on US Treasury bonds, diminishing the dollar’s carry advantage. Domestically, Finance Minister Fernando Haddad’s decision to "recalibrate" the increase in the IOF—a move that is part of a broader package aimed at restricting tax breaks on previously exempt investments—has removed a potential hindrance on bank earnings and highlighted Brazil's commitment to fiscal prudence. Additionally, reports indicating that US–China negotiators in London have committed to reviving the Geneva framework and lifting restrictions on rare-earth exports have eased supply-chain concerns and bolstered demand forecasts for Brazil's commodity exporters.