Dollar Drops 1.46% to R$5.48 Following Lula’s Fiscal Comments

The dollar fell significantly against the Brazilian real on Thursday, July 4th, marking the second consecutive day of decline.

This drop followed President Luiz Inácio Lula da Silva’s remarks reassuring investors about the government’s commitment to fiscal responsibility.

The commercial dollar closed down 1.46%, at R$5.486 for buying and R$5.487 for selling. The B3 futures contract for August decreased by 1.17%, reaching 5.504 points.

Despite this, the dollar has risen by about 13% in 2024, having traded at R$5.70 on Tuesday before the government’s reassurances.

On Wednesday, the dollar dropped 1.72%, closing at R$5.5693, marking the largest single-day percentage fall since January 6, 2023.

Market concerns about Brazil’s fiscal path had previously caused the dollar to surge.

This increased product prices and created fears that the Central Bank might raise the Selic rate, currently at 10.50% per year, to control inflation.

On Wednesday, Lula emphasized that fiscal responsibility is a priority for his administration, assuring that the country would not act irresponsibly.

Market Update

Finance Minister Fernando Haddad later confirmed the president’s commitment to fiscal preservation. He announced a R$25.9 billion cut in social benefit expenses, which calmed the market.

Analyst Matheus Spiess from Empiricus Research noted, “The positive tone from yesterday continues today. The market is removing premiums added to financial assets recently.”

He added, “This risk propensity stems from a dilution of local risks, particularly the fiscal issue, which saw significant direction yesterday.”

Externally, the U.S. market closure for a holiday reduced asset volatility. U.S. economic data indicated a moderation in the labor market.

This development boosted investor optimism for a potential Federal Reserve interest rate cut this year. This contributed to the significant decline in the U.S. dollar in Brazil.

A reduction in U.S. interest rates generally makes the dollar less attractive as Treasury yields decrease.

In Europe, attention is on upcoming elections. The British are voting on Thursday for a new prime minister, and the French are voting on Sunday for a new Parliament.

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