FX.co ★ Brazilian Real Retreats Amid Risk Aversion

In June, the Brazilian real slipped beyond 5.5 per USD, stepping back from its eight-month high of 5.49 observed on June 19th. This decline was influenced by renewed geopolitical tensions, notably the U.S. strikes on Iranian nuclear sites and Tehran's promise of "lasting consequences." These developments prompted investors to retreat to the safety of dollar-denominated assets, overshadowing Brazil's still-appealing 15% Selic interest rate. Concerns that potential Iranian reprisals or a blockade of the Strait of Hormuz could further constrict global oil supplies and fuel inflation sparked a rush to purchase USD. Meanwhile, domestic policy challenges have resurfaced as Congress considers rolling back the IOF tax, a move that could reduce government revenue by approximately R$20 billion. Additionally, inflation persistently near the upper threshold of the central bank’s tolerance has cast doubt on the timing of anticipated rate cuts.