FX.co ★ Brazilian Real Rebounds After Election Shock

The Brazilian real has rallied to surpass the 5.40 mark against the US dollar, as the political tensions that unsettled markets last week have subsided, while economic indicators have turned slightly favorable. Over the weekend, Senator Flávio Bolsonaro indicated the possibility of withdrawing his candidacy, alleviating the significant risk premium that had divided the opposition and threatened a fiscally prudent market approach. Concurrently, the weekly Focus survey slightly reduced the year-end inflation projections and improved GDP forecasts. This supports the argument for maintaining the Selic rate at its historically high restrictive levels, which helps prevent disruptive fiscal policy shifts. Additionally, the US dollar is broadly subdued with high expectations that the Federal Reserve will cut interest rates later this week, further enhancing Brazil's appeal for carry trade investments.