FX.co ★ Brazilian Real Rebounds

The Brazilian real made gains, approaching 5.22 per US dollar, its strongest position since May 2024. This movement comes as financial markets assessed the latest minutes from the Brazilian central bank's decision. The central bank officials indicated that interest rate cuts are likely to commence in March, stressing that any adjustments will strictly rely on forthcoming data. This stance is seen as a predictable evolution rather than an unexpectedly accommodative move, thereby reducing the policy risk premium and encouraging inflows related to carry trades and long-term investments, even as the Selic rate remains high at 15%. The softened US dollar against currencies from emerging markets and those tied to commodities further alleviated pressure on the USD/BRL exchange rate, boosting the real's attractiveness to foreign investors. This was supported by Brazil's favorable trade terms and consistent foreign investment driven by high real yields. Although high yields in the US have had minimal impact, allowing domestic factors to lead the way, ongoing fiscal uncertainties and political tensions continue to limit the potential for significant appreciation.