Domestic and foreign issues pressure Brazilian Real markets

Possible U.S. Fed hike of interest rates and difficulty in approving structural reforms at home, lead to appreciation of U.S. dollar, fall of market.

The Brazilian real continued to depreciate in relation to the U.S. dollar on Monday morning as investors wait for Federal Reserve Governor Lael Brainard to indicate whether or not the Fed will increase U.S. interest rates next week.

The nervousness of investors led the São Paulo stock market to register the highest daily decline in three months on Friday (-3.7 percent) and the U.S. currency to register the biggest daily appreciation since May, up by 2.16 percent to R$3.28/US$1.

The confirmation that North Korea conducted its second nuclear test this year, created more uneasiness among foreign investors, already weary after a Fed regional president stated that the entity would not wait much longer to increase interest rates.

“After (Eric) Rosengren, today it is Brainard who guides business”, Vanderley Muniz OMNIX brokerage house was quoted as saying by G1/Globo.

The appreciation of the U.S. dollar and the losses in the stock market also reflects the volatility among investors in relation to the success of President Michel Temer in promoting and getting the much needed political reforms approved in Congress.

According to analysts the social security reform being on the forefront of the list, but the approval in Congress is very uncertain.

Until Friday, the U.S. dollar, however, had accumulated a depreciation of 1.87 percent in relation to the Brazilian currency, and a depreciation of 16.92 percent since January.

Despite the decline of 2.71 percent last week, the Ibovespa Stock Market continues to register significant accumulated gains this year of 33.79 percent.

The Rio Times | Lise Alves

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