- Bearish factors
- Diversification and risk dilution movements by investors may stimulate demand for risk assets and favor a strengthening of the real.
- Possible cooling of trade tensions between the United States and China
- Weaker data for the US economy may strengthen expectations of more rate cuts by the Fed over the course of the year.
- Bullish factors
- Uncertainties due to trade tensions deepen fears of a global economic recession, which may stimulate demand for 'safe-haven' assets and harm the real's performance.
The week in review
The week was marked by sharp fluctuations in currency markets, reflecting the instability generated by contradictory signals in trade negotiations between the United States and China. Alternating episodes of moderation and tension fueled abrupt movements in financial assets, sustaining high volatility and uncertainty regarding the trajectory of global flows.
The USDBRL closed this Friday's session (25) up by around 0.1% against the dollar, with a cumulative gain of 2.0% for the week, 0.3% for the month, and 7.9% for the year, although it still shows a depreciation of 11.2% over the past 12 months. Meanwhile, the Dollar Index (DXY) finished the week up 0.6%, despite a sharp cumulative drop of 4.4% for the month and 7.9% for the year, maintaining a 5.6% decline over 12 months.
USDBRL and Dollar Index (points)
Source: StoneX cmdtyView. Prepared by: StoneX.
KEY EVENT: Possible easing of tariff tensions between the US and China
Expected impact on USDBRL: bearish
Throughout this week, the Brazilian foreign exchange market reflected the swing in global sentiment triggered by the tariff standoff between the United States and China. Alternating episodes of hope and frustration, sometimes fueled by conciliatory statements, other times by heightened tensions between the two countries, kept volatility high in financial markets.
On Tuesday, the first trading session in Brazil after Monday's holiday, the real's movement reflected the combination of new criticisms by President Donald Trump of Federal Reserve Chair Jerome Powell and the announcement by the US Department of Commerce of tariffs over 3,400% on solar panels manufactured in Southeast Asia—a measure perceived as an indirect target of Chinese companies. As a consequence, the perception of unpredictability regarding US monetary policy and the signal of a new protectionist measure by the country generated a broad sell-off in US assets, which consequently favored the appreciation of the real against the dollar.
Also on Tuesday, remarks by US Treasury Secretary Scott Bessent that the trade war was 'unsustainable' supported the real's appreciation as risk assets—such as major equity indices and emerging market currencies—gained even in the face of a Dollar Index (DXY) rebound. This dynamic continued into Wednesday, when Trump adopted a more moderate tone in interviews, ruling out the dismissal of Jerome Powell and suggesting that 'substantial' tariff reductions against China should occur soon. Meanwhile, the Chinese government emphasized its willingness to engage in dialogue with the White House, which intensified the perception that negotiations to reduce tariffs between the two countries might be taking place.
However, the more favorable outlook proved partial. In the early hours of Thursday, the Chinese Ministry of Commerce denied the existence of ongoing negotiations, restoring the perception of an impasse. In response, Trump stated that 'meetings took place this morning', but without providing further details. The misalignment of statements reignited doubts about the prospects for an agreement, once again bringing uncertainty to asset pricing. Even so, the Brazilian currency maintained its appreciation trajectory against the dollar, as investors partially sought other traditional 'safe-haven' currencies like the Japanese yen and the Swiss franc.
For next week, attention focuses on the validity of Washington's and Beijing's contradictory statements. On Friday morning, new reports suggested that China was considering suspending its import tariffs on certain US products. Additionally, the Chinese government had asked local companies to identify essential goods whose tariff-free importation would be prioritized. In this context, should concrete signs of a negotiation agenda emerge—public meetings, a timetable for tariff reductions, or joint communication—the appetite for risk is likely to firm, allowing another round of emerging market currency strengthening and potential further gains for the real. Conversely, if conflicting rhetoric persists or tariffs increase, the market will likely price in additional risk premium, raising volatility and opening space for a bullish correction in the dollar. In summary, the direction of the real will continue to depend on the balance between the easing or not of trade tensions, with a bias towards wide swings until there is clarity on the outcome of the conflict.
US employment and GDP data
Expected impact on USDBRL: bearish
Next week also brings several US economic indicator releases. Among them, the March employment report ('payroll') on Friday (04), whose median forecast anticipates a decline in job creation, from an above-expected balance of 228 thousand new jobs registered in February to 130 thousand estimated for March. Also in the labor market scope, the week will feature the February Job Openings and Labor Turnover Survey (JOLTS) on Tuesday (29) and the March ADP Private Sector Employment report on Wednesday (30). In addition to labor market data, the first estimate of Q1 2025 GDP will also be released. The median projection points to growth of 0.4% for the period, below both the 2.4% recorded in the previous quarter and the 1.4% growth observed in the first quarter of 2024.
If confirmed, these estimates could intensify investors' concerns regarding the dynamism of the US labor market, especially if accompanied by other below-expectation activity indicators throughout the week. Although recent data continue to point to only an incipient weakening of the country's economy, investors are pessimistic for fear that some of the Trump administration's economic policies could harm conditions, such as the imposition of import tariffs, hiring freezes, and large-scale layoffs promoted by the US federal government. This, in turn, could raise bets on Fed rate cuts this year, which would tend to reduce the attractiveness of US Treasuries and contribute to a scenario of global dollar depreciation.
Change in total urban employment (thousands of persons) and unemployment rate (%) in the United States
Source: U.S. Bureau of Labor Statistics (BLS), Federal Reserve Bank of St. Louis. Prepared by: StoneX.
End-of-month Ptax rate
Expected impact on USDBRL: undefined
After another month of instability, the real's exchange rate is expected to exhibit higher trading volume and volatility next Wednesday (30), during the time windows used by the Central Bank to calculate the end-of-month Ptax rate, i.e., between 10:00 and 13:10 BRT. The Ptax is a reference rate published daily by the Central Bank, and its end-of-month value is widely used in FX and derivatives contracts. Therefore, market operators intensify their operations during these intervals, competing to set its definition.
INDICATORS
Sources: Central Bank of Brazil; B3; IBGE; Fipe; FGV; MDIC; IPEA; and StoneX cmdtyView.
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