FX.co ★ Brazilian Real Depreciates to 1-Month Low

In July, the Brazilian real weakened beyond 5.5 per USD, marking a one-month low. This decline was sparked by President Trump's recent trade measures, including a 35% tariff on Canadian goods and potential widespread duties ranging from 15-20%. These actions followed a significant 50% tariff on Brazilian exports, effective from August 1st, igniting concerns over a prolonged trade conflict. Such worries have steered capital towards dollar assets and obscured the prospects for foreign exchange inflows from Brazil's second-largest trading partner. Domestically, inflation remains stubbornly high at 5.35% year-on-year as of June, well above the 3% target. This has anchored the Selic rate at a restrictive 15%, with Copom indicating a "very prolonged" pause rather than immediate cuts, thereby curbing hopes for monetary relief. Despite these challenges, Brazil's policy fundamentals have provided a measure of support; robust real yields, among the highest globally, have attracted carry-trade flows. Additionally, the Treasury's updated 2025 GDP forecast of 2.5% points to an economy resilient enough to withstand these external pressures.