FX.co ★ Brazilian Real Strengthens After Trade Talks

The Brazilian real has advanced to approximately 5.35 against the US dollar, buoyed by diminished trade tensions with the United States, a resurgence in foreign investment, and strong fundamentals linked to commodities. The recent dialogue between President Luiz Inácio Lula da Silva and former President Donald Trump has alleviated concerns over trade policies, as Lula indicated that Trump had assured a US–Brazil trade agreement, thereby enhancing expectations for export growth and external funding. Consequently, markets have adjusted to a reduced risk of tariffs following signs of improving diplomatic language and preliminary negotiations, which have decreased the potential for disruptions to Brazil's commodity exports—crucial to the country's current account balance. Moreover, the US dollar has been under pressure due to the ongoing government shutdown and mounting anticipation of Federal Reserve interest rate reductions. Brazil's relatively high real interest rates maintain its attractiveness for carry trades, while robust economic activity in China and increased commodity prices bolster projected export income, further strengthening the Brazilian real.