Dollar falls to the lowest value in more than a year before decision on Selic

Sao Paulo-SP) – The dollar fell again in the early afternoon of this Monday (19) and reached its lowest level since May 2022, with the meeting of the Monetary Policy Committee (Copom), which will decide the new basic interest rate in Brazil. on Wednesday (21), on investors’ radar.

The Brazilian stock exchange, on the other hand, resumed its upward trajectory interrupted on Friday (16th) after a new improvement in inflation projections in the BC’s Focus bulletin, released this Monday, and also in the wake of the next Copom meeting.

At 2:30 pm, the Ibovespa rose 0.83%, to 119,748 points, and the dollar fell 1.14%, to R$ 4.767.

Projections for inflation in 2023 by analysts consulted by the BC were 5.42%, last week, to 5.12%, in yet another sign of improvement in the economic environment in Brazil, showed the Focus bulletin this Monday.

In addition, experts now predict that the first Selic cut will take place in August, anticipating the previous consensus that the interest rate cut would only start in September. Analysts continue to believe, however, that the Selic should be maintained at 13.75% on Wednesday.

The dollar was pressured last week by the Federal Reserve’s monetary policy decision, the US central bank (Fed), which promoted a pause in its hike in interest rates started in March 2022. The US currency tends to benefit from high interest rates in the country, as US fixed income becomes more attractive to foreign resources.

Lower interest rates in Brazil, then, would put negative pressure on the real by reducing the profitability of the Brazilian fixed income market, and an anticipation of the first Selic cut would have this effect.

Goldman Sachs strategists said in a recent report, however, that Brazilian interest rate differentials should remain favorable to the real even when the Selic reduction begins. This is because, with the decrease in inflation in Brazil, real interest rates (which discount the IPCA) would remain at high levels, which would still maintain Brazilian fixed income flows.

“While a minor pullback is certainly possible, we think the dollar still has room for a bearish trend,”

completed the bank in the document.

As a result, the dollar is on track to register another day of losses against the real and close the day below R$ 4.80.

Abroad, the American currency recorded slight gains against a basket of strong currencies, on a public holiday in the United States.

The Ibovespa, in turn, registered an increase and was close to 120 thousand points, also supported by expectations about interest rates in Brazil.

They supported the high indexes of Petrobras (2.39%) and Localiza (3.67%), which were among the most traded in the session. The biggest gains, however, were from JBS, which rose 5.42% after announcing an expansion of units in Mato Grosso in the amount of R$ 800 million.

At the other end, Vale’s shares, which were the most traded in the session, pressured the Exchange with a fall of 0.35%, on a day of weakness in iron ore futures contracts. Losses of CVC (3.33%), Alpargatas (2.51%) and Hapvida (1.14%), which accumulated appreciation from previous trading sessions, also pulled the Ibovespa down.

In the United States, the main stock indices do not work this Monday due to the American holiday.

*With information from Folha de S.Paulo

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