RIO DE JANEIRO, BRAZIL – Funds and speculators on U.S. futures markets increased their bearish bets against the Brazilian real for a fifth week in a row, the longest streak in almost a year, data showed on Friday, February 12th.
The latest Commodity Futures Trading Commission (CFTC) data on Friday showed that funds increased their net short position by 2,917 contracts to 17,366 contracts in the week to February 9th, the biggest net short in two months.
To short a financial asset is to bet that it will decline in value.
After plunging 30% against the dollar last year, many analysts expected the real to rebound strongly at the start of this year, especially with punchy inflation pushing the Central Bank closer towards its first interest rate hike since 2015.
But a devastating second wave of the COVID-19 virus, possible economic contraction in the first quarter, and high unemployment, have forced the government to move towards extending emergency cash transfers to the poor.
This is intensifying investor fears over the fiscal outlook and weighing on the currency, canceling out the upward pressure on the real from expectations the central bank will soon begin tightening monetary policy.
Central Bank President Roberto Campos Neto said this week the high levels of currency volatility and risk premiums in Brazil are in large part due to the worrisome fiscal outlook.
The real is down 3.5% this year, among the top 10 worst-performing currencies against the dollar so far in 2021, according to Refinitiv data.