FX.co ★ Brazilian Real Weakens Past 5.55 USD

The Brazilian real has dropped below 5.55 per USD, nearing its lowest point since early June, as the U.S. dollar experiences a slight recovery from its recent declines. This uptick is driven by reports of a possible 15% baseline tariff agreement between Washington and Brussels, in conjunction with unexpectedly robust U.S. labor market data. On the domestic front, Brazil's inflation increased to 5.3% year-over-year in mid-July, surpassing expectations and effectively dismissing the possibility of immediate rate cuts by COPOM. Additionally, policy uncertainty has escalated due to President Lula's strong advocacy for national sovereignty and the potential imposition of 50% U.S. tariffs on Brazilian exports. Despite these challenges, the real's losses are somewhat mitigated by Brazil's still-significant interest rate differential. The central bank, COPOM, is anticipated to maintain the Selic rate at a peak of 15%, bolstered by renewed foreign exchange inflows as global carry-trade investors continue to be drawn to Brazil's appealing yields.