FX.co ★ Brazilian Real Strengthens on Lower Inflation

The Brazilian real edged up to around 5.08 per US dollar in September, its strongest level in more than a month, following weaker-than-expected inflation data. Brazil’s annual inflation rate slowed to 4.22% in August 2026 from 4.44% in July, coming in just below market expectations of 4.27% and moving further into the central bank’s target range of 1.50%–4.50%.

With the Selic rate still elevated, rising real yields on Brazilian bonds are enhancing the appeal of the country’s fixed-income market for yield-seeking foreign investors. Softer inflation is also helping to compress the country’s risk premium, further bolstering external investor confidence.

At the same time, the inflation figures have strengthened expectations that the BCB will cut the Selic at next week’s Copom meeting. Such a move would narrow the interest rate differential with the United States, where expectations for an additional Federal Reserve rate hike remain high after US CPI data largely matched forecasts.

Meanwhile, gains by Flávio Bolsonaro in recent presidential election polls have lent additional support to the real, as markets perceive Bolsonaro as favoring tighter fiscal policy.