Despite the fall of the dollar in recent days, discomfort with the fiscal framework still permeates businesses and leads relevant houses to revise their exchange rate projections upwards.
This saw the third consecutive session of decline in relation to the real this Thursday (5) and was expected to close below the psychological level of R$6.00, something not seen since November 28th. The signs that the government’s spending package will be quickly assessed in Brazil and the weakening of the American currency abroad have opened up space for adjustments in the risk premiums embedded in the exchange rate.
Late last night, the Chamber of Deputies approved an urgent request for two projects that make up the economic team’s plan: one related to real salary growth and the other that brings new triggers to the fiscal framework, such as limitations on credit compensation taxes and authorization of contingencies and blocking of parliamentary amendments.
Operators and analysts considered that there was room for a recovery, albeit partial, of the Brazilian currency, in case of favorable signals from Brasília and accommodation of the dollar abroad. This despite showing skepticism in relation to the estimated savings with the fiscal measures and pointing out a lack of communication by the government when jointly announcing the cost containment package with the proposed Income Tax exemption for those who receive up to R$5,000 per month .
Down since the opening, the spot dollar broke the floor of R$6.00 in the first hour of trading and registered a low of R$5.9608 in the morning. With a moderation in the downward pace throughout the afternoon, the currency ended the session down 0.63%, at R$6.0097. Despite the decline in recent days, the dollar still appreciated during the week (0.14%).
A thermometer for the behavior of the American currency in relation to a basket of six strong currencies, the DXY retreated and returned to trading below 106,000 points. The euro strengthened after the outcome of the political crisis in France, with the resignation of Prime Minister Michel Barnier.
The most recent crop of indicators shows some accommodation in the US economy and supports the perspective that the Federal Reserve will promote a new 25 basis point cut in the basic interest rate this month. Tomorrow, the official employment report (payroll) for October will be released, which could reinforce this expectation.
Despite the dollar’s fall in recent days, discomfort with the fiscal framework still permeates businesses and leads relevant houses to revise their exchange rate projections upwards. Deutsche Bank, for example, expects the dollar to reach R$6.10 at the end of this year, arguing that the government was unable to present “credible measures” and that the Central Bank “has not been able to assure the markets of its ability to contain the devaluation of the real”.
*With information from Estadão Conteúdo
Posted by Carolina Ferreira
