Brazilian Real Extends Losses Against Dollar Amid Fiscal Concerns

The Brazilian real extended its losses against the U.S. dollar on Monday, falling more than 1% to its lowest level in a year and a half, as fiscal concerns prompted investors to seek the safety of the U.S. currency.

The Brazilian currency weakened by 1.2% to 5.3887 per dollar during the session, hitting its lowest intraday level since early January 2023, before paring some losses.

Traders cited persistent uncertainty following rumors on Friday that Finance Minister Fernando Haddad had made worrying comments about Brazil’s fiscal situation in a private meeting.

Some market participants privately suggested that Haddad had indicated increased risks of the government abandoning its current fiscal framework. The minister later denied the rumors, calling them “irresponsible and inaccurate.”

Markets dislike uncertainty and fiscal disorder, and for now, there is no optimism about it either.

Brazil’s economy positioned itself as the fastest-growing in Latin America, driven by the agricultural sector and exports. However, the National Confederation of Industry (CNI) estimates that this year will not see a repeat of this scenario due to a lack of a solid foundation.

The CNI projects that the global environment will prevent the same historic increases seen last year and expects a slowdown of up to 0.2 percent.

Carlos Kawall, former Secretary of the Brazilian Treasury, suggested that the international landscape points to a reduction in interest rates by major global banks and forecasts economic growth of between 1.5% and 1.8% for the South American country.