FX.co ★ Brazilian Real Hovers Near May-2024 Highs

The Brazilian real strengthened towards 5.28 per US dollar, approaching the highest levels seen since May 2024. This development is attributed to a weakening US dollar, diminishing domestic price pressures, and a resolute stance from the country's central bank. The agreement reached in Washington to prevent a US government shutdown eliminated a significant safe-haven appeal for the dollar, thereby channeling investment back into emerging market assets. On the domestic front, Brazil's inflation rate cooled to 4.68% in October, falling short of market predictions of 4.75% and reaching its lowest point since January, effectively reducing Brazil's risk premium. The Central Bank of Brazil, also known as Copom, maintained the Selic interest rate at 15% and highlighted the necessity of sustaining high rates for an extended duration, thereby preserving a substantial real interest rate differential. This policy continues to attract portfolio investments and foreign exchange carry trades into the Brazilian real. Furthermore, improved external financial metrics and robust commodity revenues this year have afforded the central bank greater leverage to protect the currency.