Brazilian Currency Strengthens Amid Dovish Fed Outlook

The U.S. dollar traded at 5.42 reais on Saturday morning after Federal Reserve Chair Jerome Powell suggested a possible rate cut in September during his speech at the Jackson Hole symposium.

His remarks pushed the dollar lower against most global currencies and encouraged stronger demand for higher-yielding emerging market assets.

On Friday, the spot dollar ended at 5.4258 reais, down 0.97 percent. The dollar index, which measures the currency against six major peers, dropped 0.89 percent to 97.729 points.

This marked a sharp turn from earlier in the week when the dollar had gained 0.52 percent against the real. Powell noted that restrictive policy, rising risks in the labor market, and moderate inflation could justify adjustments in U.S. rates.

His tone confirmed a more cautious approach compared to past years, reinforcing expectations that the Federal Reserve might cut rates by 0.25 percentage point in September.

Markets responded quickly. FedWatch, a CME Group tool that tracks rate probabilities, showed traders assigning over 85 percent chance to a September cut, up from 75 percent one day earlier.

Brazilian Currency Strengthens Amid Dovish Fed Outlook

U.S. Treasury yields declined, with the 10-year yield falling to around 4.26 percent. Stocks rallied strongly, while flows into U.S. equity ETFs exceeded one billion dollars in a single day.

Meanwhile, currency ETFs registered net outflows of roughly 452 million dollars, confirming that investors reduced long-dollar exposure after Powell’s remarks.

In Brazil, the carry trade remains attractive. The Selic rate stands at 15 percent while inflation reached 5.23 percent in July, well above the 3 percent target.

The combination sustains high real yields, drawing international investors whenever global dollar sentiment softens.

Domestic markets also adjusted interest rate futures as analysts began projecting earlier cuts in the Selic, with some houses moving expected easing to January 2026 instead of April.

Charts confirm the short-term reaction. On the four-hour chart, the dollar trades near the lower Bollinger Band, with the Relative Strength Index near 36, suggesting oversold conditions.

The MACD remains below its signal line, showing negative momentum. Resistance stands around 5.44 to 5.45 reais, while immediate support is near 5.41 reais.

On the daily chart, the currency remains under long-term moving averages, with RSI near 42 and resistance above 5.45 reais.

The Global Liquidity Index, plotted in yellow, remains flat, showing that structural liquidity flows have yet to strengthen despite the dollar’s drop.

The next weeks will hinge on U.S. data that could confirm or challenge the September cut narrative.

If expectations hold, Brazil’s high carry and steady capital inflows may continue to support the real at current levels.

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