Brazil Real Drops for the Second Week on Fed Stimulus Reduction Bets

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Brazil Real Drops for the Second Week on Fed Stimulus Reduction BetsThe Brazil’s real completed its second consecutive weekly drop last Friday on speculation that the Federal Reserve will curb economic stimulus, dampening appetite for assets from emerging markets. The currency also took a hit from fresh signs of banking sector difficulties in Portugal.

The real fell after Portuguese lender Banco Espirito Santo SA missed its debt repayments, and due to Federal Reserve plan to end its monthly bond purchases in October this year if the economy continues strengthening in line with estimates. The minutes of Fed’s June meeting signaled it plans to end the bond-purchase program with a final cut of $15 billion.

The Brazilian currency fell 0.3 percent last week to close at 2.2210 per U.S. dollar. The swap rates on the contracts that mature in January 2016 accelerated 0.03 percentage point, or three basis points, to 11.12 percent. To support the real and curb imported inflation, the central bank sold currency swaps valued at $198.7 million on Friday and rolled over $346.2 million worth of contracts. Brazil intends to offer swaps worth $200 million every business day until December.

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“The real was mostly influenced by external factors this week,” Joao Paulo de Gracia Correa, a Curitiba-based currency trader at Correparti Corretora de Cambio told Bloomberg. “Bad sentiment regarding Portugal’s financial stability damaged currencies mostly from emerging markets while the Fed’s minutes were favorable for an appreciation of the dollar worldwide.”

With the World Cup soccer tournament ending today, markets are expected to focus on chances of President Dilma Rousseff being elected back to office this October. Bets that the elections will head for a runoff has boosted the real, which has appreciated 6.4 percent this year. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com