The Brazilian real oscillated wildly after Fitch ratings revised the country’s debt rating to negative, watering a decision by local politicians to reduce budget shortfall.
The real dropped 0.1 percent to trade at 3.0520 per dollar as of 12:33 p.m. Sao Paulo time after earlier appreciating 0.8 percent on Thursday. The real’s one-month implied, which tracks expectations of swings in the exchange rate, led 16 other major currencies.
“The fact that Fitch only lowered the outlook and not the rating is positive,” Reginaldo Siaca, a Sao Paulo-based currency manager at Tov Corretora de Cambio, told Bloomberg News. “A cut in the rating would be much worse, and it could have happened. There are grounds for that.”
Fitch noted that though Brazil was implementing measures to improve policy confidence and credibility, there still existed risks tied to “implementation and durability”. The debt rating firm classified Brazil at BBB, which is still within investment grade, though at lower level.
Brazilian political leaders threw their weight behind the government’s new budget strategy. This followed a move by Vice President Michel Temer to led talks with the lawmakers.
Swap rates for the contract that matures in January 2017, which measure projected changes in Brazil’s interest rates, rose 0.02 percentage point to 13 percent.
Meanwhile, the U.S. dollar rose to its highest level in nearly three weeks today, boosted by confidence that U.S. borrowing rates will eventually increase despite uneven economic data. The dollar appreciated at least 1 percent to 0.9772 Swiss francs and appreciated 0.24 percent to 120.43 yen. The pound plunged by more than 1 percent to trade at $1.4711, its lowest level in three weeks.
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