Dollar Closes Above R$4.10 After US Federal Reserve Bank Cuts Interest Rates

RIO DE JANEIRO, BRAZIL – The Brazilian stock market fell in line with most foreign markets.

The explanation is partly due to a setback from investors, who thought the president of the Fed (Federal Reserve Bank), Jerome Powell, was unclear regarding the potential for further interest rate cuts.

On Wednesday, the Fed made its second cut in the year, which is also the second reduction since its cycle of cuts after the 2008 crisis. In this round, interest rates fell from 2 .00 percent to 1.75 percent, against the previous 2.25 percent to 2.00 percent.

The decision was not unanimous: one of the Fed members voted for a larger cut in the 1.5 percent to 1.75 percent range, while two others suggested the rate should be maintained.

Members of the US Federal Reserve Bank continue to point out that this is a preventive measure to contain potential damage to the US economy as a result of the trade war between the United States and China.

There is also the risk of contagion from the crisis that is already reaching Europe, particularly Germany, in a clear reflection of the dispute between Washington and Beijing, which is experiencing alternating days of resurgence and relief.

However, American president Donald Trump once again criticized the Fed’s cut, which he has always deemed insufficient. This time, he stated that the Fed has failed again and that Powell has “no balls”.

Despite the market’s blatant dissatisfaction, there is still another possible reading for the dollar’s appreciation following the Fed’s decision. Powell said the Fed will use all the tools at its disposal to accomplish its task, which is to generate as many jobs as possible with inflation on target.

The realization that the Fed will effectively take action to keep the US economy on track is positive, and this helps strengthen the emerging American currency. “As they [Fed] are doing what the market thinks is right, the dollar is appreciating,” said Fernanda Consorte, chief economist at Ourinvest.

The dollar closed the day at R$4.1050, the highest since September 5th. The reaction on the stock markets was slower, but it can also be viewed as optimistic.

The Ibovespa (Brazil’s main stock market index) lost 104,000 points, at the end of a virtually stable trading session, with a 0.08 % drop to 104,531 points.

The American S&P 500 and Dow Jones indices finished positive, after having traded in the red for virtually the entire day.

Source: Folhapress