FX.co ★ Brazilian Real Losses Ground

The Brazilian real has weakened beyond 5.37 to the US dollar, influenced primarily by a robust US dollar that counteracts developments in trade. Globally, the strength of the US dollar is underpinned by persistent expectations that the Federal Reserve might maintain higher interest rates for an extended period, which exerts pressure on the real. Concurrently, the recent US-China trade agreement, albeit involving tariff reductions and the temporary lifting of rare-earth export restrictions, is perceived as a provisional step and does not significantly alter the existing trade dynamics, thus keeping global trade flow projections and Brazil's export prospects uncertain. On the domestic front, despite the Central Bank of Brazil's firm policy stance with elevated interest rates, inflation remains under control, thereby offering limited yield advantage for the currency. Moreover, external challenges such as continuous trade and tariff tensions, coupled with heightened fiscal uncertainty and dependency on commodity exports, continue to foster a cautious environment.