Brazilian Real: Dollar and interest rate futures settle higher after US inflation data (July 13)

RIO DE JANEIRO, BRAZIL – After opening the trading session near stability, the commercial dollar is set at a moderate-high this morning with the release of figures from the U.S. consumer price index, which exceeded the median projections of economists.

Around 10 AM, the U.S. currency gained 0.78% against the real, quoted at R$ 5.2152, after having reached the maximum of the day, the level of R$ 5.2212. The movement followed the strengthening of the global dollar, as shown by the ICE Dollar Index (DXY), which compares the currency to a basket of currencies from developed countries.

The “full” inflation data for June in the USA presented a high of 0.9% in the monthly comparison, against expectations of 0.5%, and an advance of 5.4% on an annual basis, against projections of 5%. Core inflation, which excludes items with more volatile prices such as food and energy, also beat estimates both on the margin and the same period in 2020.

In the wake of the American inflation figures, also future interest rates, which opened the regular session with few changes in relation to the previous adjustments, started to operate higher.

The reaction follows the performance of risk assets abroad, which occupy negative terrain reflecting increasing caution of investors with the rise in the general price level in the U.S. and fears of possible early moves in the Federal Reserve’s monetary policy (Fed).

At the same time, the rate of the Interfinancial Deposit (DI) contract for January 2022 went from 5.81% to 5.84%; the DI for January 2023 advanced from 7.32% to 7.385%; the contract for January 2025 varied from 8.37% to 8.43% and the DI for January 2027 varied from 8.77% to 8.83%.

Besides the economic agenda on Tuesday, the Brazilian political scenario is highlighted, presenting a new text of the tax reform that should bring important adjustments. Among them would be reducing 12.5 percentage points in Corporate Income Tax (IRPJ) and the exemption of income tax from real estate funds.

The already uncomfortably high tension between Brazil’s “Three Powers” was further exacerbated after a conversation between President Jair Bolsonaro and Supreme Court (STF) Chief Justice Luiz Fux.

The Justice separately granted the right to remain silent to the technical director of Precisa Medicamentos, Emanuela Medrades, during testimony today in the Senate’s Covid CPI investigative committee. The company allegedly was the intermediator for the purchase of the Indian vaccine Covaxin, which has seen accusations of corruption.

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