Dollar deepens losses and closes at R$5.55 as investors monitor fiscal and Brazil Central Bank

RIO DE JANEIRO, BRAZIL – The dollar deepened losses against the Brazilian currency on Monday, going below R$5.55 at the day’s low, with recent government signals to the financial market and the monetary policy meeting of the Central Bank this week dominating the attention of investors.

At 3:53 PM (Brasília), the spot dollar was down 1.35% at R$5.5486 reais on sale. On the B3 (B3SA3), the dollar future had a devaluation of 1.76% at R$5.5535 reais.

The spot US currency was already falling during most of the morning’s negotiations, but started to accelerate its losses from 1.30 pm onwards and, around 3.50 pm, reached the minimum of the day at R$5.5426 reais, a drop of 1.45%.

After the concrete threat of non-compliance with the spending cap by the government hit Brazilian assets last week, investors were keeping an eye on recent signals from President Jair Bolsonaro and the Minister of Economy, Paulo Guedes, to financial markets.

Even so, the perception of some operators is that their signals do not come close to reversing the intense blow that the country’s fiscal credibility suffered from the government’s plans to pay the Brazil Aid with spending outside its fiscal limit.

Fernando Bergallo, director of operations at FB Capital, said the dollar drop this Monday does not reflect any improvement in the fiscal scenario and is only a “natural” adjustment after the strong valuation accumulated by the currency last week of 3.115%.

The markets’ attention was also drawn to the Central Bank’s monetary policy meeting, which starts on Tuesday and ends on Wednesday, since several important financial institutions have raised their projections for the pace of tightening to be announced by the autarchy, forecasting an increase of 125 to 150 basis points in the Selic rate.