FX Weekly Overview (Brazil Issue)

The week in review 

Last week was marked by fears that the unpredictability of US economic policies and the “tariff war” between the US and China would trigger a global recession, resulting in high volatility and pessimism in global financial markets. This, in turn, boosted the performance of safe-haven assets such as gold, the Swiss franc, and the yen, while globally weakening the dollar.

The USDBRL ended Friday’s session (11) quoted at 5.8703, up +0.5% for the week, +2.9% for the month, and down -5.0% for the year. Meanwhile, the dollar index closed Friday at 99.9 points, down 3.0% for the week, 4.1% for the month, and 7.6% for the year.

USDBRL and Dollar Index (points)

Source: StoneX cmdtyView. Preparation: StoneX.

Expected Impact on USDBRL: Bullish

Since the beginning of Donald Trump’s presidency, global financial markets have been experiencing significant volatility due to high levels of uncertainty, unpredictability, and inconsistency in US monetary policy. The US government has been making rapid changes in various areas, including foreign trade, immigration, fiscal policy, energy policy, business regulation, diplomacy, and the structure of the federal administration. These changes are being implemented through Executive acts, largely without corresponding legislative changes, often accompanied by declarations of emergency powers for legal support—such as national security and economic emergency declarations—the highest number of such acts seen at the start of a government since 1933.

Sum of Executive Orders, Memoranda and Substantive Proclamations in the first 100 days of government

Source: The American Presidency Project / University of California, Santa Barbara.

This rapid pace of changes results in high uncertainty and unpredictability regarding the direction of the business environment, which in itself is enough to prompt a cautious stance among business leaders and investors, discouraging major decision-making. However, this uncertainty and unpredictability are further aggravated by the inconsistent implementation of some strategies. A prime example is the imposition of import tariffs on other economies, with successive announcements, postponements, cancellations, and unfulfilled threats on that front.

Monitoring of the import tariffs announced by the White House

Source: The White House. Preparation: StoneX.

Last week, the US government briefly raised its tariff barriers to the highest level since 1910, then unexpectedly reduced all tariffs to the minimum 10% for 90 days—with the exception of China, which saw its surcharges raised to 145%. In response, Beijing retaliated by imposing a 125% tariff on all US products. As mentioned in last week’s overview, a change of such magnitude in such a short period should disrupt the global economic order built over the last four decades, with specialized and interdependent global supply chains. There is no immediately available productive capacity to manufacture the goods and inputs imported by the US; investments needed to generate that capacity are costly and time-consuming (especially for high-tech and custom-produced segments); and import substitution by local goods may result in higher costs, while demand prospects remain substantially uncertain. It is unrealistic to expect this to occur without disrupting global logistics chains and causing deep negative effects on the global economy. In this context, one argument by those who do not expect the worst is that the effects of these tariffs would be so catastrophic that the US would be forced to backtrack.

Logically, investor confidence may rise if the US establishes new trade agreements with other countries; however, this possibility is undermined by the inherent unpredictability and inconsistency of US government conduct. The intensification of trade barriers was planned for weeks by the White House, using an arbitrary formula to penalize its trading partners during the announcement. Moreover, the abrupt changes in the current administration’s stance reduce the confidence of other leaders that the US will honor any future agreements. For example, Brazil had previously reached an agreement during Trump’s first term to limit exports of steel and aluminum in exchange for a tariff exemption, but it was taxed again in this second term.

As a result of this chaotic environment, global economic growth is likely to be hampered, particularly in the United States and China. Additionally, US inflation is also expected to rise due to higher import costs, at least in the short term. Therefore, investors should maintain a high degree of risk aversion and seek safe-haven assets, such as gold, the Swiss franc, the yen, and the euro, which tends to weaken the currencies of emerging economies like the real.

Finally, it is worth mentioning that the turbulence caused over the past few weeks by the US government appears to have triggered a “crisis of confidence” in American assets and undermined their status as safe havens, with a significant weakening of the dollar and a rapid rise in Treasury yields even in the face of swift appreciation of other safe-haven assets.

Weekly Variation of Selected Currencies Against the Dollar (%)

Source: StoneX cmdtyView. Preparation: StoneX.

Expected Impact on USDBRL: Bearish

March economic indicators have brought positive surprises about the US economy. Both job creation exceeded expectations, and the Consumer Price Index (CPI) and Producer Price Index (PPI) registered an unexpected deflation and a mild rise in their core components (excluding the volatile food and energy segments). Similarly, a recovery in US retail sales is expected, rising from a 0.2% increase in February to 1.3% in March, likely driven by anticipatory purchases before the impact of import tariffs on prices. Under different circumstances, such data showing expanding demand, a resilient labor market, and stabilized inflation would improve investor expectations for economic dynamism and boost risky assets like the real. However, this effect has been significantly muted by high uncertainty and pessimism, as these past results are seen as inadequate predictors of future economic activity ahead of the introduction of high and comprehensive tariffs by the government in early April.

Expected Impact on USDBRL: Bullish

In China, investors will monitor the release of several economic indicators during the week amid increasing uncertainty regarding the resilience of the Chinese economy in light of the escalating trade conflict with the United States. The main highlight will be the first-quarter GDP for 2025, which is expected to expand at an annualized rate of 5.2%. If confirmed, this would represent a slight deceleration compared to the 5.3% growth registered in the same period last year, yet still above the government’s official growth target of 5.0%. Additionally, investors will remain alert to new measures adopted by Beijing in response to trade tensions with the US, whether retaliatory or aimed at sustaining economic activity, such as fiscal or monetary stimuli. On Friday, the Chinese government signaled that, despite recent tensions, it does not intend to raise tariffs on US products again, even if the White House takes further unilateral actions. However, Beijing reiterated that it may resort to other forms of retaliation and confirmed its determination to maintain the trade dispute "until the end." This scenario of uncertainty may further increase global risk aversion, which tends to exert downward pressure on risky assets such as stocks, commodities, and currencies of emerging economies—including the real.

Expected Impact on USDBRL: Bullish

Last Thursday (10), President Luiz Inácio Lula da Silva signed the 2025 Annual Budget Law (LOA), with only two vetoes to the text approved by Congress. The final deadline for signing was April 15, which is also the due date for submitting the 2026 Budget Guidelines (LDO) project to the Legislature. The fiscal scenario remains one of the key concerns for investors in the domestic environment amid growing skepticism about the federal government’s willingness to implement a credible and sustainable fiscal adjustment. Among investors, doubts persist regarding the political will to reduce public spending and increase the primary surplus, particularly given the current slowdown in activity and the upcoming 2026 election cycle. In this context, any signal of weakness in fiscal policy execution tends to be viewed negatively by economic agents, potentially impacting the performance of the real and the perceived robustness of Brazil’s macroeconomic environment.

Expected Impact on USDBRL: Bullish

Analysts largely agree that the European Central Bank (ECB) is expected to cut its key interest rate for the seventh consecutive meeting next Thursday (17), lowering it from 2.50% p.a. to 2.25% p.a. The decision is anticipated to be based on improved inflation projections for the European Union, an economic slowdown, and the recent escalation of risks associated with the trade barriers imposed by the United States. Last week, the risks of a potential bilateral escalation of US tariffs with the European bloc were partially mitigated after the suspension of tariffs on €21 billion worth of US products for 90 days, in response to a partial “truce” signaled by the White House on Wednesday (09). Nonetheless, trade tensions between the US and China remain high, and uncertainty regarding the impacts of US trade policy on global economic growth continues to worry market participants, who are betting on further interest rate cuts by the ECB—an action that would weaken the euro and indirectly strengthen the dollar.

INDICATORS 

Sources: Central Bank of Brazil; B3; IBGE; Fipe; FGV; MDIC; IPEA and StoneX cmdtyView.