Brazil’s Real Plunges after Fed Revises Interest-Rate Outlook

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Brazil’s Real Plunges after Fed Revises Interest-Rate OutlookThe Brazil’s real dropped to its lowest level in six months after the Federal Reserve boosted the dollar by increasing its interest-rate estimate. Investors also anxiously awaited the release of the latest opinion poll on Brazil’s presidential elections.

The real fell 0.1 percent to trade at 2.36 per dollar as of 2:28 p.m. Sao Paulo time, its lowest level since March 13 on a closing basis. Swap rates, which measure forecasts of swings in interest rates, edged up 0.06 percentage point, or six basis points, to 11.59 percent for the contract that matures in January 2016.

“The increase in the Fed rate forecast was unexpected, and that brought some tension to investors,” Camila Abdelmalack, a Sao Paulo-based economist at CM Capital Markets in Sao Paulo, told Bloomberg News. “The real, along with some other currencies, is declining as a reflection of that.”

Brazil’s leading opposition aspirant lagged behind President Dilma Rousseff, results of a Datafolha opinion poll released on Sept. 10 showed. This means the two main candidates are virtually tied in a runoff.  Datafolha was expected to release its latest results today.

Fed policy makers revised their median forecast for the benchmark interest rate at the end of next year to 1.375 percent from June’s estimate of 1.125 percent. Though the U.S. central bank raised its interest rate outlook, it signaled that it will retain interest rates close to zero for some time after it phases out its monthly bond-purchase program.

In order to bolster the real, Brazil placed currency swaps worth $197.8 million for sale today and rolled over $295.9 million worth of contracts. 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