FX Weekly Overview (Brazil Issue)

USDBRL expected to reflect US GDP, IPCA-15, political fears in Brazil, Fed nomination and seasonal dollar outflow

• Notice: Due to the year-end holidays, StoneX Market Intelligence publication routines will be adapted in the coming weeks.

• The FX Weekly Overview will not be published on December 26 and January 2, returning on January 09, 2024.
• Happy Holidays!

The week in review

• Statements from leaders and 2026 election polls increased the perception of fiscal risk, reducing the attractiveness of domestic assets and pressuring the real negatively.
• Release of CPI and ”Payroll”, despite being mixed, reinforced signs of resilience in the US economy, sustaining expectations for keeping interest rates higher for longer and strengthening the dollar globally.
• Speeches from officials and the Monetary Policy Report (RPM) indicated a cautious stance by the Central Bank, reducing bets for aggressive Selic cuts.

USDBRL and Dollar Index (points)

USDBRL variations | Day: +0.15% | Week: +2.18% | Month: +3.67% | Year: -10.47% | 12 months: -9.69% |
Dollar Index variations | Day: +0.16% | Week: +0.18% | Month: -0.86% | Year: -8.83% | 12 months: -9.05% |

THE MOST IMPORTANT: US Gross Domestic Product (GDP)

Expected impact on USDBRL: bullish

US GDP annualized quarterly growth rate

Over the next two weeks, investors will be attentive to the release of indicators regarding the United States economy while trying to calibrate their expectations regarding the interest rate path in the country.

• Highlights include the first reading of the Gross Domestic Product (GDP) and the Personal Consumption Expenditures (PCE) Price Index, both referring to the third quarter of 2025.
• Projections indicate moderation in the pace of GDP growth and the maintenance of inflation at a level higher than the 2% per year target pursued by the Federal Reserve.

 

Why this matters: If estimates are confirmed, the data should reinforce the perception that there is no urgency for new cuts in the country, which may support a more cautious stance by Federal Reserve members.

• This scenario, in turn, tends to keep Treasury yields elevated, favoring foreign capital inflow and strengthening the dollar globally.

 

Doubts about interest rate cuts: At the last meeting on December 10, the Federal Open Market Committee (FOMC) reduced the base rate by 0.25 p.p., to the range between 3.50% and 3.75% per year.

• Despite the cut, the Committee signaled prudence and recorded three dissenting votes, something unprecedented since September 2019.
• The Summary of Economic Projections, released alongside the decision, showed high dispersion in interest rate expectations for 2026 and 2027, reflecting uncertainty about economic performance and price levels.
• The high degree of dispersion results mainly from contradictory economic statistics for the US, with some indicators suggesting more vigorous performance and others suggesting weaker performance than expected.

 

Data delay: The release of most data over the next two weeks had been postponed due to the 43-day US government shutdown, which may compromise the quality of statistics, as part of the collection was interrupted during the reference months.

 

What to expect:

• GDP: The median estimate indicates a slowdown in annualized growth to 3.2%, following a 3.8% advance in the second quarter. Despite the loss of momentum, if confirmed, the result should be considered sufficient to ward off perceptions of excessive economic weakening. It's worth remembering that the higher-than-expected expansion in the second quarter was related to the recovery from weak performance observed at the beginning of the year.
• PCE: Median estimates for Q3 point to a 2.9% annualized advance in both the headline index and the core, which excludes food and energy. This pace advances slightly from the previous variation, signaling that inflationary pressure remains consistent, even though it has slowed throughout the year. The PCE is the Federal Reserve's preferred inflationary metric as it better reflects household consumption patterns. The annualized rate close to 3% indicates that inflation remains above the 2% target, which may reduce bets for additional rate cuts in upcoming FOMC meetings, reinforcing the monetary authority's cautious stance.

 

2026 Political Scenario in Brazil

Expected impact on USDBRL: bullish

This week, the Brazilian currency was once again pressured by 2026 election polls, which signaled an advantage for Luiz Inácio Lula da Silva's candidacy against main opposition leaders.

• Increased political concern among investors has intensified since the beginning of the month following Senator Flávio Bolsonaro's statement about his choice as candidate by former President Jair Bolsonaro.

• Investors fear that a re-election of the current government will result in higher public spending levels over the next four years.
• Therefore, this news increased the perception of fiscal risks for Brazilian assets and hindered the attraction of foreign capital, devaluing the real.
• Next week, according to reports, former President Jair Bolsonaro is expected to grant his first interview since being arrested, which may intensify political volatility.

 

Why this is important: If new news on the subject emerges in the coming weeks, aversion to domestic assets may intensify, putting downward pressure on the real, especially as elections approach.

 

IPCA-15 and Employment Data in Brazil

Expected impact on USDBRL: bullish

In Brazil, the week's agenda includes important indicators for investors to calibrate their expectations regarding the Central Bank's monetary policy conduct.

• The highlight should be the release of the Extended National Consumer Price Index 15 (IPCA-15), which tends to show a new moderate high in December.
• Additionally, investors should follow the National Household Sample Survey (PNAD) for October, which should indicate stability in labor market conditions, with the likely maintenance of the unemployment rate.

 

Why this is important: If confirmed, the moderation of inflation data tends to increase investor bets for faster interest rate cuts by the Central Bank, as a gradual stabilization of inflation towards the target is observed.

• This movement may reduce the attractiveness of national bonds and hinder foreign capital inflow, harming the real's performance.
• Furthermore, if employment data brings any negative surprise after a long period of stability in Brazilian labor market conditions, it could also contribute to bets on an early start to the cutting cycle.

 

Overview: The most recent inflation data, the Extended National Consumer Price Index (IPCA) for November, showed an increase of 0.20%, after a 0.09% advance in October.

• Despite the monthly acceleration, the result slowed the 12-month accumulated increase from 4.68% to 4.46% in the period, reinforcing the perception that inflation is losing steam.
• With the inflation slowdown, despite the index remaining above the 3% target, it fell below the 4.5% ceiling set by the Central Bank.

 

Nomination of the next Federal Reserve Chair

Expected impact on USDBRL: bearish

This week, President Donald Trump stated that he is evaluating “three or four” names to take over the presidency of the Federal Reserve, indicating that he intends to announce his choice soon.

• According to Trump, the decision should occur in the coming weeks, although he has not confirmed if it will be released this year.
• The president has reiterated his preference for an official who adopts a more aggressive stance on reducing interest rates to lower financing costs, especially in the housing market.
• In previous statements, Trump mentioned that he already has “a good idea” of who will be nominated.

 

Why this matters: The nomination of a chair aligned with a greater monetary easing stance tends to increase risk perception regarding US assets, pressuring Treasury yields and reducing the dollar's attractiveness in the global market.

 

Seasonal dollar outflow from Brazil

Expected impact on USDBRL: bullish

The dynamics of the foreign exchange market in the coming weeks may reflect technical effects associated with the seasonal outflow of dollars from the country.

• The end of the year is traditionally marked by a higher volume of profit remittances abroad, reducing the supply of US currency in the domestic market and boosting speculative movements, which tends to accentuate exchange rate fluctuations.
• Therefore, it is also common for foreign exchange interventions by the Central Bank to occur during this period to stabilize the demand for dollars in the market.

 

Overview: From an exchange rate perspective, this movement is recurrent and distributed throughout December, driven by specific vectors:

• Profit and dividend remittances by foreign-controlled companies, concentrated after the accounting close.
• Payments for international services and contracts (royalties, technology, chartering, insurance), often settled at the end of the fiscal year.
• Portfolio rebalancing by foreign investors, reducing exposure to emerging markets.
• Closing of foreign exchange positions by banks and companies before the year-end, aiming for accounting and regulatory adjustments.

 

Year-end Ptax rate

Expected impact on USDBRL: uncertain

In the last session of the year, scheduled for December 30, the market tends to register a higher volume of trades and volatility during the windows used by the Central Bank to calculate the closing Ptax rate, between 10:00 AM and 01:10 PM.

• Ptax is a reference rate released daily by the BC, widely used in the settlement of exchange and derivative contracts.
• Month-end and especially year-end values have additional relevance as they serve as a parameter for accounting and financial adjustments.
• Given this, traders usually intensify their operations during these intervals, competing to form the rate, which tends to generate sharper fluctuations in the exchange rate.

 

INDICATORS

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