RIO DE JANEIRO, BRAZIL – The dollar jumped more than 2% on Friday (30), virtually erasing in just one session the cumulative decline of the entire week, attracted by a strong movement of defensive buying amid renewed fiscal noise in the country that contributed to the negative impact of the risk climate abroad.
The sell-off that affected the Brazilian real also spread to other markets. The Ibovespa (IBOV) plunged more than 3%, and rates for interest rate futures traded on the B3 (B3SA3) rose more than 30 basis points by afternoon.
The collective market move came amid fears that President Jair Bolsonaro will adopt a populist course amid the government crisis and the president’s worsening personal assessment a little more than a year before the presidential election.
Bolsonaro said Friday that the government could expand emergency aid to the needy and informally employed if the Covid 19 pandemic lasts until 2022.
Earlier, Economy Minister Paulo Guedes said his team had noticed atypical increases in another public expenditure since last year that could require a government response.
“I think the market bought Brazil very heavily and ignored the fiscal risk. And then Paulo Guedes’ speech woke up the market,” said the manager of a large financial institution in São Paulo.
Market participants have tended to use external factors to explain exchange rate fluctuations in recent weeks, leaving fiscal news aside in the analysis while general economic indicators improved.
In the morning, the Central Bank reported that Brazil’s consolidated public sector recorded a primary deficit of R$65.508 billion in June, higher than the R$60.0 billion forecast in a Reuters poll. Nevertheless, gross debt fell to its lowest level in a year.
Among emerging markets, Brazil ranks alongside Argentina and Egypt in terms of fiscal fragility and may struggle to contain pressure for more spending, BNP Paribas said in a report.
HIGHEST VALUE FOR JULY SINCE 2015
On Friday, the spot dollar closed up 2.53% at 5.2082 reais, after fluctuating between 5.215 reais (+2.67%) and 5.0765 reais (-0.06%) in the session. The increase was the strongest since July 19 (+2.59%). The level, the highest since last Friday (5.2101 reais).
The dollar had a negative change of 0.04% for the week after declining by 2.51% until Thursday.
In July, it climbed 4.66%. The monthly high is the highest since January (+5.53%) and giving back to the currency almost all the decline in June (-4.77%). For the July months, the appreciation was the strongest since 2015 (+10.16%).
In 2021, the dollar has recorded a slight gain of 0.32%.