FX.co ★ Brazilian Real Holds Strong After GDP

The Brazilian real recently strengthened, surpassing 5.29 against the US dollar, inching closer to its highs from May 2024. This currency movement follows the release of third-quarter GDP figures and a generally weaker US dollar. Brazil's GDP increased by 1.8% compared to the previous year—marking the slowest growth in over three years—indicating a cooling economy. This trend suggests a higher likelihood that the country's central bank might soon reduce interest rates, which are currently at their highest in nearly two decades. Although the central bank's governor has noted that the slowdown is gradual, evidence of this cooling is apparent across both goods and services sectors. Meanwhile, a robust labor market and consistent real wage increases are bolstering household incomes and tax revenues, easing immediate fiscal pressures and minimizing the risk of sudden policy changes. Concurrently, the US dollar has remained generally weak with a prevailing expectation that the Federal Reserve will lower interest rates next week, thereby enhancing Brazil's carry trade appeal and offering strong support for the real.