By: Leonel Mattos, Market Intelligence Analyst • BRAZIL PRS
USD/BRL and Dollar Index (points)
USDBRL variations | Daily: +0.63% | Weekly: +1.13% | Monthly: +2.58% | Year-to-date: -5.09% | Last 12 months: -3.85%
Dollar index variations | Daily: +0.51% | Weekly: +0.86% | Monthly: -0.24% | Year-to-date: +1.36% | Last 12 months: +1.81%
Bets for the Federal Reserve’s interest rate decision on September 16
The forex market is expected to reflect the release of US economic indicators, especially labor market data, while calibrating expectations for the country’s interest rate trajectory.
Why this matters: A recovery in US job creation could increase investors’ bets on further short-term interest rate hikes, boosting yields on US Treasuries and attracting foreign capital to the country, thereby strengthening the USD globally.
Estimates: After two months of weaker-than-expected US labor market data, analysts anticipate a recovery in the August Employment Situation Report.
Potential interest rate hike: Last week, investors resumed betting on an interest rate hike by the Federal Reserve at the September 16 meeting following Kevin Warsh’s speech at the Annual Monetary Policy Symposium in Jackson Hole.
Yes, but: Although Warsh’s statements triggered a notable increase in bets for an interest rate hike, recent data points in the opposite direction, suggesting a less strong US economy than anticipated.
Brazil’s quarterly GDP growth (%)
Domestically, investors are expected to react to the release of second-quarter Gross Domestic Product (GDP) figures.
Why this matters? Signs of slowing economic activity tend to strengthen investors’ expectations for further cuts to the benchmark interest rate (Selic).
Estimates and recent data: In the latest Focus Bulletin, the median estimate points to accumulated growth over four quarters slowing from 2.00% to 1.93% in the second quarter.
Overview: Recent readings of economic activity indices have suggested a slight economic contraction in recent months, although the accumulated balance over the past 12 months remains positive.
On the domestic political front, investors are closely monitoring developments in the presidential race for October’s elections.
Why this matters? A tight electoral race may reduce predictability regarding Brazil’s economic policies for the next four years, increasing the perceived risks of national assets, amplifying volatility, and negatively impacting the Brazilian real’s performance.
Electoral polls: In the most recent voting intention poll released by PoderData on Thursday (27), candidates Luiz Inácio Lula da Silva and Flávio Bolsonaro show 38% and 35% of first-round voting intentions, respectively.
PECs in Congress: Last Thursday (27), Senator Omar Aziz (PSD-AM), rapporteur for the PEC ending the 6x1 schedule, returned a favorable opinion supporting the text approved by the House of Representatives to expedite its Senate approval.
Month-end PTAX rate – selling (BRL/USD)
Trading volume and exchange rate volatility are expected to rise during today’s session due to the month-end PTAX rate formation.
Why this matters: Financial market operators intensify their transactions during the intervals of the month’s final PTAX rate formation to attempt to influence its value in a direction favorable to their positions, increasing volatility and complicating the interpretation of real movements during the day.
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