FX.co ★ Brazilian Real Rebounds to 6-Week Highs

The Brazilian real has strengthened to approximately 5.36 per US dollar, achieving a six-week high. This progress is attributed to a robust domestic economic environment and decisive regulatory measures, which have reduced Brazil's perceived risk. Recently, domestic economic indicators exceeded expectations; the IBGE reported a 1.0% increase in retail sales month-on-month in November and a 1.3% increase year-on-year. These figures bolster short-term economic confidence and decrease the risk premium required for Brazilian assets. Concurrently, the Central Bank's decision on January 15 to place Reag into extrajudicial liquidation has eliminated a fraud-related risk linked to Banco Master. This move demonstrates regulatory determination and allays fears of widespread financial instability. Furthermore, the macroeconomic situation has become more favorable, with annual inflation in 2025 returning to the target range. This development has adjusted expectations toward a potential, albeit moderate, early reduction in the Selic rate, which remains at 15%. Maintaining this rate helps preserve Brazil's yield advantage and continues to attract carry trade inflows.