The Brazilian real strengthened to approximately 5.54 against the US dollar, bouncing back from the lows observed in early August. This movement comes as investors digested lower-than-anticipated domestic inflation figures and a softening US dollar. Brazil's mid-month inflation rate was recorded at 4.41% in December, aligning closely with predictions of 4.4% and remaining within the Central Bank's target range of 1.5%–4.5%. This has helped quell immediate concerns about rising prices, supported the narrative of disinflation, and reduced the inflation risk premium factored into the currency. Concurrently, the US dollar weakened, despite a robust 4.3% GDP growth in the third quarter, as market expectations lean towards Federal Reserve easing next year and a decline in the demand for the dollar as a safe haven. However, the real's gains are limited by persistent political uncertainty. Concerns persist regarding electoral risks linked to Bolsonaro and recent legislative actions, such as a Senate bill aimed at reducing Jair Bolsonaro’s sentence, which create uncertainty about policy consistency and fiscal management, thus maintaining a high foreign exchange risk premium for Brazil.