FX.co ★ Brazilian Real Tumbles Amid Election Rumors

The Brazilian real declined beyond 5.38 per US dollar, following a surge towards the highs anticipated in May 2024. This downturn occurred due to a sudden change in the 2026 electoral landscape, elevating perceived fiscal and policy risks at a time when the currency's support was already limited. Reports that Jair Bolsonaro might support Flávio Bolsonaro disrupted expectations of a more moderate, market-friendly coalition, leading investors to increase Brazil's sovereign risk premium. This political upheaval was further complicated by economic data indicating slowed momentum, with third-quarter GDP rising by 1.8% year-on-year—a growth rate that marks the weakest expansion in over three years—suggesting the likelihood of more lenient borrowing conditions. Meanwhile, a persistently tight labor market and ongoing real wage growth continue to bolster government revenues and household incomes, mitigating the short-term fiscal impact. In contrast, the US dollar remained generally subdued, with widespread anticipation that the Federal Reserve will reduce rates in the coming week, thereby enhancing Brazil's carry trade advantage.