FX Weekly Overview (Brazil Issue)

USDBRL Expected to Reflect Copom Minutes, IPCA, and Negotiations to Fund the U.S. Government

The week in review

• Brazil’s Central Bank kept the benchmark interest rate (Selic) steady at 15% per year, reinforcing a conservative tone in its statement.
• Private U.S. economic data showed mixed readings, with higher-than-expected private job creation and accelerated PMI indices, alongside greater-than-anticipated job cuts and an unexpected drop in consumer confidence.

USDBRL and Dollar Index (points)

USDBRL Variations | Daily: -0.27% | Weekly: -0.84% | Monthly: -0.84% | Year-to-Date: -13.65% | 12-month: -6.01% |
Dollar Index Variations | Daily: -0.14% | Weekly: -0.20% | Monthly: -0.20% | Year-to-Date: -7.90% | 12-month: -4.64% |

Key Focus: IPCA and Copom Minutes
Expected Impact on USDBRL: Bullish

Brazil: Historical and Median Interest Rate Forecast – Focus Report as of October 31, 2025

Domestically, investors are likely to react to the release of October’s Broad Consumer Price Index (IPCA), with the median estimate forecasting a 0.16% increase following a 0.48% rise in September.

• If confirmed, this result would slow the 12-month cumulative increase from 5.17% to 4.75%, reinforcing the perception that inflation is losing momentum.
• This trend was acknowledged by the Central Bank in last Wednesday’s Copom decision, where the statement highlighted signs of “easing inflation.”
• As such, the release of the meeting minutes this week will be closely monitored, as market participants seek further insights into the committee’s assessment and potential clues about future monetary policy steps.

 

Why This Matters: While the minutes are expected to reiterate maintaining the Selic at elevated levels for a “prolonged period,” any indication that the committee recognizes signs of slowing inflation could fuel expectations of rate cuts as early as 2026.

• Even if inflation remains above target, confirmation of a stabilization trend could help reduce inflationary risk perceptions.
• Such adjustments in expectations, though limited in impact, may lower projections for domestic bond yields and contribute to a depreciation of the Brazilian real.

 

Copom Minutes: The document is expected to maintain the tone of the statement issued after the decision, prompting investors to look for details on subtle changes presented by the Committee.

• The most significant change in the statement relates to the acknowledgment of early signs of slowing inflation, as noted: “headline inflation and underlying measures showed some easing but remained above the inflation target.”
• This acknowledgment indicates a perception of easing, albeit insufficient for convergence to the target or to establish a consolidated trend.
• The recognition was further reinforced by another excerpt, highlighting that “the Committee assesses that the strategy of maintaining the current level of interest rates for a very prolonged period is sufficient to ensure inflation converges to the target.”
• This formulation demonstrates that Copom views the current interest rate level as adequate to curb inflationary pressures, eliminating the need for further hikes while comfortably maintaining the Selic steady as it awaits clearer disinflation signals.

 

IPCA: If the median forecast of a 0.16% rise in October’s IPCA is confirmed, the index should reach 4.75% for the 12-month cumulative, still above the 3% target but closer to the 4.5% ceiling set by the Central Bank.

• This result would represent a significant slowdown compared to the recent peak of 5.53% recorded in April 2025, highlighting progress in the disinflation process.
• Beyond the headline index, investors will closely monitor the behavior of service prices and core inflation, which exclude volatile items such as food and energy. In September, core inflation fell from 0.34% (August) to 0.03%, while services, which are more demand-sensitive, dropped from 0.41% to 0.09% in the same period.

 

Potential U.S. Government Reopening
Expected Impact on USDBRL: Bearish

Duration of U.S. Government Shutdowns Since 1980 (days)

Last week, Congressional leaders from both the Republican and Democratic parties signaled initial progress toward an agreement to reopen the U.S. government.

• This marks the longest government shutdown in U.S. history.

 

Why This Matters: Reopening the U.S. public sector would enable the resumption of economic data collection and publication, suspended since October 1.

• This would provide a gradual understanding of the country’s economic developments, boosting risk appetite among investors and benefiting riskier assets like the Brazilian real.

 

Overview: To approve a new budget or extend the existing one, 60 Senate votes are required, but the Senate is split between 53 Republicans and 47 Democrats.

• However, party leaders remain at an impasse, with Democrats demanding guarantees that public healthcare subsidies will be extended and properly allocated.

• This year, the White House rescinded various expenditures approved by Congress with Republican consent, which holds the majority in both chambers and voted against challenges from lawmakers to these rescissions.
• Last week, though, some lawmakers from both parties indicated initial progress toward reaching a new consensus.
• Some Democrats question their party’s demand for healthcare subsidy guarantees before voting to extend the previous budget.
• Meanwhile, some Republicans question their party’s insistence on reopening the government prior to negotiating healthcare subsidies.

 

An Alternative: A proposed solution to break the deadlock includes three key elements:

• Approval of a short-term extension of the current budget until September 30;
• Scheduling healthcare subsidies for debate in legislative chambers; and
• Passing a separate long-term budget to fund military, legislative, and agricultural sectors.
• However, debates continue over the duration of the potential budget extension.

 

Growing Pressure: The prolonged shutdown’s challenges are increasingly pressuring the U.S. executive and Congress to find a solution to reopen the government.

• Although the White House managed to reallocate funds to pay October salaries for military personnel, most public servants are approaching a second month without wages.

• Additionally, the end of subsidies for public healthcare programs has led to a sharp increase in costs since November 1, while a food assistance program for 42 million Americans was suspended this month.
• The country’s civil aviation regulator ordered a 10% reduction in the number of flights at 40 airports due to a widespread shortage of air traffic controllers.
• Pressure on Republicans also mounted after Democrats’ victories in key elections last Tuesday (November 4), including mayoral races in New York City, the governorship in Virginia, and a proposal for redistricting reforms in California.
• On Friday (November 7), White House economic adviser Kevin Hassett stated that the economic impacts of the shutdown are “much worse” than anticipated, particularly in the travel and leisure sectors.

 

Data Delays: With a government reopening, economic indicators suspended since October 1 would gradually be released, starting with older data and moving to the most recent.

• These figures will be essential for assessing the economic outlook and adjusting investor expectations for the trajectory of U.S. interest rates.

 

INDICATORS