FX.co ★ Brazilian Real Strengthens for 2nd Session

The Brazilian real has appreciated to surpass 5.3 per US dollar, approaching its May 2024 peaks last observed in November, as the U.S. dollar weakened due to strong expectations of a Federal Reserve rate cut in December, following increasing indications of a cooling U.S. labor market. Concurrently, Brazil recorded an unemployment rate of 5.4% in the quarter ending in October, with nearly 5.9 million individuals unemployed. Average real wages increased to R$3,528, a situation that boosts household incomes and tax revenues while alleviating short-term fiscal pressures. With employment at historically low levels and rising labor income, domestic demand is anticipated to remain strong, even as the Selic rate stays at 15%. This maintains Brazil's interest rate advantage and sustains capital flows into local assets and the currency.