The dollar retreats amid pricing in a new, larger increase in the Selic rate at the next Copom meeting (Image: Getty Images/ Canva Pro)
O dollar spot (USDBRL) began the session this Thursday (19) down more than 1%, falling below R$5.40, in reaction to interest rate decisions in the United States and Brazil.
In comparison with the real, the US currency operated at R$ 5,3958 in the first minutes of negotiations.
The day before, the dollar closed down 0.48%, quoted at R$5.4617.
Abroad, the DXY indicator, which compares the dollar to a basket of six global currencies, started the day close to stability.
What is bringing down the dollar today?
The domestic market is reacting to the Central Bank’s “more aggressive” tone in the announcement of the decision on the basic interest rate.
Yesterday (18), the Monetary Policy Committee (Copom) unanimously decided to raise the Selic rate by 25 basis points, to 10.75% per year, kicking off a 'mini-cycle' of monetary tightening.
In the statement, the Committee stated that “the scenario, marked by resilience in activity, pressures in the labor market, a positive output gap, rising inflation projections and unanchored expectations, demands a more contractionary monetary policy”.
The board also considered that “the pace of future adjustments in the interest rate and the total magnitude of the cycle now initiated will be dictated by the firm commitment to convergence of inflation to the target and will depend on the evolution of inflation dynamics”.
With this entire scenario presented by Copom, financial agents' bets on a 50 basis point increase in the Selic rate at the November meeting increased.
Furthermore, the appreciation of commodities boosts emerging currencies, such as the real.
Abroad, interest rates in the United States are heading in the opposite direction.
The Federal Reserve (Fed) cut interest rates by 0.50 percentage points (pp), to 4.75% to 5.00%. The magnitude of the reduction was in line with market expectations, according to CME Group's FedWatch tool.
Furthermore, this was the first reduction since March 2020 and marks the beginning of the monetary easing cycle in the world's largest economy.
“The (Federal Open Market) Committee has gained greater confidence that inflation is moving sustainably toward 2 percent and judges that the risks to achieving its employment and inflation goals are roughly balanced,” the Fed said in a statement.
During the press conference, Fed Chairman Jerome Powell said the monetary authority did not “wait too long” to cut its benchmark interest rate.
“We don’t think we’re overdue” on the need to cut rates given the outlook, Powell said. “We’ve been very patient” with monetary policy and “I think that patience has paid dividends” in the form of a convincing decline in inflation.
It is worth remembering that the more the Fed cuts interest rates, the worse it is for the dollar, which becomes comparatively less attractive as Treasury yields fall, generating risk appetite in other markets with higher interest rates, such as Brazil.