Brazilian Real Gains Ground Amid Disinflation and Dollar Softness

Key Points

• The Brazilian Real strengthened against the US Dollar on December 23, closing near 5.52, supported by softer domestic inflation data and broader USD weakness.
• Mid-December inflation aligned with expectations at 4.41%, reinforcing disinflation while the Selic rate remains restrictive at 15%.
• Persistent fiscal risks, including projected deficits and political uncertainties, continue to cap the Real’s upside despite high carry appeal.

The Brazilian Real appreciated notably against the US Dollar in the session ending December 23, 2025, with the USD/BRL pair declining 1.24% to approximately 5.52.

This movement reflected a combination of encouraging domestic inflation figures and a weakening US Dollar Index (DXY), which hovered near 97.88, extending its multi-week retreat amid expectations of Federal Reserve rate adjustments in 2026.

Brazil’s mid-December inflation reading of 4.41% came in line with forecasts, remaining within the Central Bank‘s tolerance band and signaling continued progress toward price stability.

The restrictive Selic rate of 15% has bolstered carry trade attractiveness, providing a buffer for the currency even as growth forecasts for 2025 have moderated to around 2.2%–2.4%, indicating a potential slowdown.

USD/BRL consolidates amid fiscal and political risks

Technical charts reveal short-term consolidation around 5.50–5.55 on the 4-hour timeframe, with daily and weekly views pointing to a longer-term downtrend for USD/BRL, supported by descending trendlines and key support near 5.40–5.50.

Resistance looms at 5.59–5.60, where reversals have occurred. However, gains remain tempered by structural challenges. Fiscal projections suggest a primary deficit nearing 0.60% of GDP for 2026, in contrast with official targets.

At the same time, political developments—including debates over opposition figures—are elevating risk premiums. Investor caution is evident in recent outflows from Brazil-focused ETFs like EWZ.

In this environment, the Real benefits from global USD dynamics and monetary discipline, yet fiscal prudence will be essential to sustain momentum. Holiday-thinned trading advises measured positioning as markets approach year-end.