BRL Holds Near May 2024 Lows Despite Hawkish Fed and DXY Surge
Dollar closes at R$5.2406 (+0.20%) in the post-Carnival session as DXY surges 0.62% to 97.70, the strongest in a week. The real underperformed most EM peers as the global dollar bid dominated. Morning saw a correction of Friday’s pre-Carnival defensive positioning, but the greenback gained momentum after US durable goods orders fell less than expected.
FOMC minutes revealed deep divisions — near-unanimous hold at 3.50–3.75%, but “several” members floated further hikes if inflation persists. The hawkish surprise complicates the carry trade thesis that has driven R$33B+ in foreign equity inflows. Rate-cut expectations for 2026 may shift further out, reducing the real’s yield advantage.
Copom signaled March easing start at the January meeting, with Selic at 15% — the highest since July 2006. Focus consensus projects Selic at 12.25% year-end 2026. DI futures curve declined across tenors despite the stronger dollar, as investors priced in the easing cycle. Lula’s partial veto on congressional salary raises was a minor fiscal positive.
Session Data
| Asset | Price | Change |
|---|---|---|
| USD/BRL (spot close) | R$5.2406 | +0.20% |
| USD/BRL (ICE daily) | R$5.2354 | 0.00% |
| DXY | 97.70 | +0.62% |
| Selic | 15.00% | unchanged |
| Fed Funds | 3.50–3.75% | unchanged |
| Carry Spread (Selic − Fed) | ~11.25% | wide |
| Foreign Equity Inflows (YTD) | R$33B+ | through Feb 11 |
| BRL 2025 Performance | +11% vs USD | R$6.00+ → R$5.24 |
Market Commentary
The real’s Ash Wednesday return was subdued. USD/BRL rose 0.20% to R$5.2406 in the shortened session (13h–17h55), driven almost entirely by the global dollar bid rather than domestic factors. DXY surged 0.62% to 97.70 — its strongest in a week — after US durable goods data beat expectations. This is part of The Rio Times’ daily coverage of Latin American markets and financial news.
The FOMC minutes added pressure in the afternoon. “Several” members floating further hikes if inflation persists complicates the carry trade that has been the primary engine of real strength. With Selic at 15% and Fed Funds at 3.50–3.75%, the ~11.25% spread remains historically wide — but if the Fed pushes rate-cut expectations further out, the real loses its yield edge faster than expected.
Domestically, the DI curve told its own story. Rates fell across tenors despite the stronger dollar — a vote of confidence that the Copom will deliver March easing as signaled. Focus consensus projects Selic at 12.25% year-end. The Banco Central’s extrajudicial liquidation of Banco Pleno added a note of caution but was idiosyncratic.
Lula’s partial veto on congressional salary raises was a minor fiscal positive, signaling restraint. Investors will watch whether Congress overrides the veto — any move to expand spending in an election year (Oct 4 first round) could pressure the real.
The real remains near its strongest level since May 2024, having appreciated roughly 11% from R$6.00+ levels in late 2024. Focus consensus still projects R$5.50 year-end — suggesting limited room for further appreciation without structural fiscal improvement.
Technical Analysis
USD/BRL — Daily (TradingView, Feb 19 08:14 UTC, ICE): O: 5.2354 / H: 5.2354 / L: 5.2354 / C: 5.2354 (0.00%). Note: The ICE daily bar shows a flat open — the Feb 18 spot close at 5.2406 from Kaype Abreu/InfoMoney is the operative reference.
Ichimoku is fully bearish for USD/BRL (bullish for the real): price well below cloud (5.3547–5.3805), below Tenkan-sen (~5.2418) and Kijun-sen (~5.2814). The 200-SMA at 5.4257 is 3.5% above price. The downtrend from the Dec highs near R$5.85 remains intact.
RSI at 43.93 (signal 38.79) is neutral-to-bearish — neither oversold nor showing reversal signals. The signal line at 38.79 suggests momentum is still favoring the real, though the divergence between RSI (43.93) and signal (38.79) hints at a potential short-term bounce.
Key support for the dollar: 5.2129 and 5.2021, then the psychological 5.16 (Feb lows near 5.1624). Resistance: 5.2418 (Tenkan-sen), 5.2814 (Kijun-sen), 5.2911. A break above the Kijun at 5.2814 would be the first meaningful signal of trend exhaustion.
| Level | Rate | Source |
|---|---|---|
| $ Resistance 3 | 5.3805 | Cloud upper boundary |
| $ Resistance 2 | 5.2814 | Kijun-sen |
| $ Resistance 1 | 5.2418 | Tenkan-sen |
| Spot | 5.2406 | Feb 18 close |
| $ Support 1 | 5.2129 | Recent swing low |
| $ Support 2 | 5.2021 | Feb low zone |
| $ Support 3 | 5.1624 | Feb cycle low / May 2024 level |
Forward Look
Copom March easing: The market expects the first Selic cut in March — consensus is 50bp to 14.50%. If the cut materializes, the carry trade narrows, but gradually. The Copom emphasized a “strictly data-dependent” pace.
FOMC fallout + PMI/PCE: This week’s US data (flash PMIs, Core PCE) will determine whether the hawkish minutes translate into repricing. Strong US data would push DXY higher and pressure the real toward R$5.28+.
Supreme Court tariff ruling (Feb 20): A tariff strike-down lowers US inflation expectations, weakens the dollar, and directly benefits Brazilian exporters. The 70% Polymarket probability makes this a high-impact catalyst for BRL strength.
Election cycle begins: Oct 4 first round. Historically, H2 volatility spikes as candidates emerge. Fiscal signals — spending discipline vs. electoral spending — will be the key swing factor. Focus R$5.50 year-end target implies the market expects some depreciation from current levels.
The real absorbed a hawkish FOMC and a surging dollar with just a 0.20% slip — the carry trade cushion at 11.25% is still doing the heavy lifting.
R$5.2406 is near the strongest level since May 2024. The 11% appreciation from R$6.00+ has been driven by carry (Selic 15% vs Fed 3.50–3.75%), R$33B+ in foreign equity inflows, and a globally weaker dollar. These pillars remain intact for now.
The risk is front-loaded in the easing cycle. As the Copom cuts from March onward (target: 12.25% by year-end), the carry narrows from 11.25% to ~8.50%. If the Fed simultaneously delays cuts, the spread compression accelerates. Focus consensus at R$5.50 implies 5% depreciation from here.
The election cycle adds a second layer of uncertainty. Fiscal discipline in H1 vs. electoral spending in H2 will determine whether the real holds below R$5.30 or drifts toward R$5.50+. Congress’s response to Lula’s salary veto is an early signal.
Technical bias: BRL Bullish ($ bearish) below 5.2418 (Tenkan); Neutral 5.2418–5.2814; BRL Bearish ($ bullish) above 5.2814 (Kijun).
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