FX.co ★ Brazilian Real Depreciated Toward 5.40

The Brazilian real has depreciated, nearing 5.40 against the US dollar, as it retreats from highs seen in May 2024. This downturn is fueled by anticipations of a dovish shift by the central bank, ongoing fiscal concerns, and a strengthening US dollar. The Finance Ministry has revised its 2025 growth and inflation forecasts downward, highlighting a weaker economic outlook that could impact export performance and tax revenue. Inflation in October has eased sufficiently to lead markets to anticipate potential rate cuts earlier in 2026, narrowing Brazil's yield advantage. Although the central bank has maintained the Selic rate at a historically high 15%, it has indicated a pause in further tightening rather than additional increases, thereby reducing the domestic policy premium. Despite recent external policy shifts, continuous concerns over public debt have kept risk premia high and constrained demand for the real.