FX.co ★ Brazilian Real at Near 8-Month High

In early June, the Brazilian real appreciated to 5.6 per USD, marking its strongest position in almost eight months. This shift was largely influenced by a weakening US dollar and increased optimism regarding the potential for US tariffs to be less severe than anticipated. A pivotal phone conversation between Presidents Xi Jinping and Donald Trump reignited hopes for a resolution to the US-China trade dispute, prompting a widespread sell-off of the dollar. This development heightened concerns that tariffs are negatively impacting US economic growth, as indicated by a weakening labor market.

On the domestic front, ongoing fiscal uncertainties related to alternatives to the IOF decree have been mitigated by the Central Bank's commitment to defending the currency. The Bank has also suggested maintaining the Selic rate at its current level amid cooling inflation, which has attracted carry-trade inflows into the Brazilian real.