Dollar has highest drop since March with relief on domestic fiscal concerns

RIO DE JANEIRO, BRAZIL – The dollar closed down sharply on Tuesday (24), the steepest drop since March that pushed it to an 11-day low, with the Brazilian real leading gains in global foreign exchange markets amid easing domestic fiscal concerns.

The second consecutive day of commodity rally contributed to the dollar drop in Brazil and worldwide, in addition to the optimistic trading day in the New York stock exchanges, but it was the comments of Brazil’s Chamber of Deputies president Arthur Lira that spurred the market.

In an Expert XP 2021 event for investors, Lira ruled out that Congress will approve measures that go against fiscal responsibility or default in the case of court-order debts, for which he guaranteed that there will be a solution within the spending cap. The Chamber president also assured that he never heard any proposal from the economic team to remove the payment of court-order debts from the cap – a constitutional provision that limits any increase in public spending in one year to the inflation of the prior year.

“President Lira’s statement provided some answer to this uncertainty the market has shown about the fiscal front,” said Lucas Schroeder, director of operations at Câmbio Curitiba. “Investors are starting to regain confidence in the Brazilian market, dismantling positions in favor of the dollar,” he added.

Between the minimum of late July, around R$5.04, and the maximum of August, around R$5.48, the future dollar jumped 8.8%, boosted by the increase of political-fiscal noise in Brazil in a period of greater caution abroad.

The domestic context has been pressuring the dollar, but a big test for the North American currency will occur on Friday, when the global financial market’s spotlight will be turned on U.S. Federal Reserve Jerome Powell’s speech at the famous annual economic symposium in Jackson Hole, USA.

Investors are waiting to see if the Fed will provide any clearer indication as to when it will begin to cut monetary stimuli – the same ones that flooded the world with liquidity in 2020 and helped prevent an even greater rise in the dollar in Brazil and abroad.

On Tuesday, the spot dollar fell 2.25% to R$5.2613 on sale. This is its sharpest devaluation since March 10 (-2.39%). The currency’s price is the lowest since August 13 (R$5.2461) but is still slightly above the closing price on July 31.

With Tuesday’s drop, the dollar is once again below its 200-day rolling average and just short of its 100-day average. Both are considered support points in the current context, whose breach could accelerate the currency’s adjustment.

Abroad, the dollar index against a basket of currencies from developed countries fell 0.13%, extending the previous day’s drop, while Wall Street hit new records.