Dollar Falls 1.71% to R$ 5.56 as Lula Pauses Criticism of Central Bank

On a day when President Luiz Inácio Lula da Silva paused his criticism of the Central Bank, the dollar fell against the real, dropping below R$5.60.

This decline was also influenced by the anticipation of a government meeting to address the confidence crisis and discuss fiscal policies.

The previous day, rumors circulated that the Central Bank might intervene in the currency market, slightly moderating gains.

Despite this, the dollar closed 0.22% higher at R$ 5.6665, marking the highest close since January 10, 2022.

Finance Minister Fernando Haddad confirmed the Central Bank’s autonomy to act on the exchange rate as needed.

He expressed confidence in the dollar‘s stabilization and emphasized President Lula’s commitment to fiscal responsibility.

The commercial dollar fell 1.71% to R$5.568 in both buying and selling. On B3, the August futures dollar contract dropped 2.03% to 5,581 points.

The Central Bank sold all 12,000 traditional currency swap contracts in a morning auction, rolling over the September 2024 maturity. Despite rumors, no additional operations were announced.

Economic Insights

The dollar’s recent rise against the real stemmed from market uncertainties about Brazil’s fiscal trajectory.

This could potentially lead the Central Bank to increase the Selic rate, currently at 10.50%, to curb inflation.

Lula plans to meet with key ministers to discuss the exchange rate. Speculation about changes to the Financial Operations Tax on dollar transactions was denied by Haddad.

Markets responded positively to Lula’s fiscal responsibility remarks during the Family Agriculture Plan launch. Economist Paulo Gala from Banco Master noted the market’s calmer state.

He attributed this to expected government measures to control the dollar’s rise, describing it as a confidence crisis rather than an economic issue.

U.S. economic data also influenced the dollar’s weakening. The ADP report showed 150,000 private sector jobs created, which was below the expected 160,000.

Meanwhile, unemployment claims hit 238,000 last week, exceeding the forecast of 235,000.

The ISM’s non-manufacturing PMI fell to 48.8, the lowest since May 2020, from 53.8. U.S. factory orders unexpectedly dropped by 0.5% in May, following a 0.4% rise in April.

The Federal Reserve’s latest meeting minutes revealed concerns about labor market deterioration. Oxford Economics suggests potential interest rate cuts starting in September.

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