Brazil real to remain under pressure as fiscal changes weigh – Reuters poll

Brazil real to remain under pressure as fiscal changes weigh – Reuters poll
Brazil real to remain under pressure as fiscal changes weigh - Reuters poll
© Reuters. FILE PHOTO: Brazilian Real and U.S. dollar notes are pictured at a currency exchange office in Rio de Janeiro, Brazil, in this September 10, 2015 photo illustration. REUTERS/Ricardo Moraes

By Gabriel Burin

BUENOS AIRES (Reuters) – Brazil’s real will stay under pressure while the new government mulls fiscal reforms to allow for higher welfare spending, but losses should subside as money dealers head out for their summer break in the Latin American nation, a Reuters poll showed.

The currency has depreciated 2.6% to 5.43 per U.S. dollar since President Luiz Inacio Lula da Silva took office at the start of the year, affirming his vow to prioritize social issues and extending fuel tax exemptions.

Trading tends to slow down, along with the anxiety of market participants, during summer in the Southern Hemisphere, which began on Dec. 21.

Formal discussions over a fresh budget scheme, aimed at offsetting the impact on the public debt of Lula’s 168 billion reais extra spending package, are expected to not start until April.

The real is set to gain 2.5% in one month to 5.30 per U.S. dollar, according to the median estimate of 15 foreign exchange strategists polled Jan. 3-5 – the weakest expected level in the 30-day period since a consensus of 5.30 in October.

“Depending on the design of the new fiscal framework, markets may get frustrated and foster an increase in the risk premium for prices of Brazilian financial assets,” Santander (BME:) economists wrote.

In reply to a separate question on the skew for the real in the coming year, a majority of seven of 12 respondents viewed risks tilted to the downside, three saw a neutral trend, and the other two inclined toward a stronger local currency.

In one year, the real is likely to recover 4.4% to 5.20 per dollar, according to a wider sample of 23 economists. And in Mexico, the consensus 12-month forecast for the peso, at 20.00 per dollar, implied a potential drop of 3.1%.

Still, 2023 would be the seventh year in a row Mexico’s currency trades around 20.00 per dollar, consolidating its position as the most stable currency in a region where volatility is becoming more the norm rather than the exception.

The balance of risks perceived by poll participants for the peso was more favorable, with five of ten seeing softer levels, but three viewing chances of stronger values in the unit, and two giving a neutral answer.

Mindful of the dangers posed by currency weakness in developing countries, the Bank of Mexico raised its key interest rate to a record 10.50% in its last meeting of 2022 and suggested it could hike at least once more.

(For other stories from the January Reuters foreign exchange poll:)

(Reporting and polling by Gabriel Burin in Buenos Aires; additional polling by Mumal Rathore and Indradip Ghosh in Bengaluru; Editing by Bernadette Baum)

Leave a Reply

Your email address will not be published. Required fields are marked *

New Brokers
2.8 rating
Buy & sell Crypto in minutes
3.0 rating
Note: Investing involves risks. You can lose your deposit. We advise you to only invest in financial products which match your knowledge and experience.
2.0 rating
Interactive Brokers attracts active traders with low per-share pricing, an advanced trading platform.
4.3 rating
eToro is the world’s leading social trading platform, with thousands of options for traders and investors.
Risk Warning: The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory or other services by AdonFinance. In addition, the content of the website offers no opinion with respect to the suitability of any security or any specific investment. Trading foreign exchange, stocks, cryptocurrencies and commodities is potentially high risk and may not be suitable for all investors. The high level of leverage can work both for and against traders. Before any investment with any broker you need to carefully consider your targets, previous experience, and risk level. Forex trading can result in the loss of your money, as a result, you are expressly cautioned that you should never invest or trade with money that you cannot afford to lose. For the avoidance of doubt, AdonFinance's service provides Brokers reviews in the Financial market. AdonFinance, its subsidiaries, agents or affiliates will assume no responsibility whatsoever for your trading activity. © Copyright 2021 AdonFinance