FX Weekly Overview (Brazil Issue)

Markets to React to US-Iran Talks, Federal Reserve Chair Hearing, and US Economic Data 

• Notice: The Economic Indicators Calendar is now available in an interactive report format.

• This new model allows users to dynamically track both historical release dates and upcoming announcements scheduled through the end of the year.

• To access, click here.    

Last Week’s Recap

• Despite a lack of concrete progress in the latest meeting between US and Iranian delegations, global sentiment remained optimistic and risk-on throughout the week, albeit with clear signs of caution. This backdrop supported the Brazilian real, keeping the dollar below BRL 5.00 during the period.
• The ceasefire announced between Israel and Lebanon—a condition previously set by Iran for negotiations to advance—helped sustain improved investor sentiment toward the end of the week. On Friday (17), Iran’s announcement of the full reopening of the Strait of Hormuz reinforced perceptions of reduced geopolitical risks in the short term.
• Internationally, the US March PPI came in lower than expected, despite recent changes in tariff policies and the shock to oil prices. The reading helped ease concerns about inflationary pass-through to consumers, providing additional support for risk assets.
• In Brazil, the better-than-expected IBC-Br results pointed to economic resilience, a factor that could prompt the Brazilian central bank to adopt a more cautious approach, particularly regarding the pace and scope of monetary policy easing.

Commercial Dollar (USD/BRL) and Dollar Index (points)

Commercial Dollar Changes

Daily: -0.24% | Weekly: -0.54% | Monthly: -3.86% | Year-to-Date: -9.05% | Last 12 Months: -14.22%

Dollar Index Changes

Daily: +0.02% | Weekly: -0.46% | Monthly: -1.59% | Year-to-Date: -0.10% | Last 12 Months: -1.17%

KEY TAKEAWAY: Reopening of Hormuz Strait and US-Iran Talks

Expected USDBRL Impact: Bearish

Next week, financial markets will remain focused on diplomatic developments between the US and Iran.

• According to President Donald Trump, a second meeting between representatives of the two nations is expected over the weekend, keeping investors alert to potential signals of negotiation progress.

• On Friday (17), Iran’s reopening of the Strait of Hormuz, combined with the 10-day ceasefire agreement between Israel and Lebanon announced the day before, contributed to renewed investor optimism regarding the possibility of a more lasting accord.
• Nonetheless, the situation remains fragile. Ceasefire agreements are inherently temporary, and no definitive resolution to the regional conflict has been reached, leaving the environment vulnerable to further deterioration.
• As a result, any negative signals or unexpected escalation in tensions could quickly erode market sentiment and reverse recent gains.

 

Why This Matters: Positive signals and progress in US-Iran negotiations are likely to sustain global risk appetite, benefiting assets more sensitive to international capital flows, such as the Brazilian real.

• This more constructive environment has helped explain the recent performance of Brazil’s currency, with the dollar staying below the BRL 5.00 level in most sessions. Conversely, the absence of a definitive accord or signs of resumed conflict could increase risk aversion and reverse these trends.

 

Strait of Hormuz: The reopening of the strait provides relief by enabling the resumption of flows along the world’s primary oil export route, easing pressure on commodity prices.

• However, the US Navy’s blockade of Iranian vessels in the region is expected to remain in place until negotiations between the two countries conclude.
• In response, Iran has threatened to reimpose restrictions on passage if the US fails to lift the blockade, keeping the Strait of Hormuz as a key flashpoint for geopolitical tensions.

 

Oil Supply: Despite temporary relief in tensions and expectations of gradual flow normalization, significant supply concerns remain. Damage to production infrastructure in the region and a month-long disruption of regular shipments continue to limit output.

• According to the International Energy Agency (EIA), full recovery of production capacity impacted by the conflict could take up to two years—a factor the agency believes the market has underestimated. In this context, structural supply constraints are expected to keep oil prices elevated in the near term, which remains a key concern for monetary authorities.
• In the last week of the month, central banks in Brazil and key global economies will convene to decide on their benchmark interest rates. Even in a scenario of diplomatic progress, assessing the potential inflationary impacts from oil and geopolitical tensions will be central to monetary policy decisions.

 

Kevin Warsh Faces Senate Confirmation Hearing for Federal Reserve Chair

Expected USDBRL Impact: Bearish

Markets are also focused on the confirmation process for Kevin Warsh as the next Federal Reserve Chair, nominated by Donald Trump to replace Jerome Powell.

• The long-awaited Senate confirmation hearing has been scheduled for Tuesday, April 21, following the submission of mandatory documents regarding potential conflicts of interest.
• Despite formal progress, uncertainty surrounds the process. Approval of the nomination hinges on full support from Senate Banking Committee Republicans, where the majority is slim.
• Republican Senator Thom Tillis has threatened to block the nomination until the Department of Justice completes its investigation into Jerome Powell, creating a tangible risk of political deadlock.
• With just weeks remaining before Powell’s term ends, delays or stalling in the process add a new layer of uncertainty for markets.

Why This Matters: Leadership uncertainty at the Federal Reserve arises in an already sensitive context, marked by recurring pressures from Donald Trump on the central bank.

• The combination of institutional uncertainty and questions about the Fed’s independence could weaken perceptions of predictability and credibility in US monetary policy.
• This environment may reduce the attractiveness of US Treasury securities, pressuring the dollar and amplifying volatility in global markets, especially in assets sensitive to international capital flows.

University of Michigan Consumer Confidence Index (UMich)

Expected USDBRL Impact: Bullish

Next week, the University of Michigan Consumer Confidence Index in the US for April will serve as a key indicator for investors to adjust their expectations regarding the country’s economic outlook.

• The index is significant as it measures consumers’ future expectations, aiding in forecasting economic trends.
• In addition to the overall index, attention will also focus on its inflation expectations component for the year ahead.

 

Why This Matters: Signs of rising inflation expectations could reinforce concerns about unanchored inflation, suggesting prolonged monetary tightening may be required.

• This scenario could, in turn, increase yields on public debt and strengthen the dollar globally.
   

Recent Data: In the preliminary April release, the overall index fell from 53.3 in March to 47.6.

• Meanwhile, inflation expectations for the next 12 months accelerated from 3.8% to 4.8%.
• These figures point to worsening economic activity and inflation control in the US, potentially exacerbated by the Middle East conflict and rising energy commodity prices.

INDICATORS