FX.co ★ Brazilian Real Appreciates to 8-Month High

In June, the Brazilian real strengthened beyond 5.55 against the US dollar, marking its highest level in nearly eight months. This rise comes in the wake of recent inflation data, elevated real interest rates, clearer fiscal policies, and a more favorable global environment. Inflation for May declined to 5.32%, unexpectedly lower but still above the target for the seventh month in a row, justifying the Central Bank’s latest rate hike. The Central Bank's decision to increase the Selic rate to 14.75%—a peak not seen in 17 years—while hinting at a possible pause, maintained Brazil’s competitive interest rate differential, encouraging strong portfolio investments. On the fiscal side, the government's decision to "recalibrate" the IOF adjustment has effectively reduced uncertainty, tightened sovereign spreads, and somewhat restored confidence in Brazil's fiscal path. Internationally, progress in US–China export-control discussions in London has alleviated global risk aversion, bolstering commodity-linked currencies and further supporting the real's appreciation.