Dollar Surges on Oil Slump and Inflation Expectations in Brazil and US

The US dollar gained significant ground on Tuesday, closing at R$5.6553 against the Brazilian real, marking a 1.32% increase.

This surge reflected growing investor caution ahead of key inflation reports from both Brazil and the United States.

In Brazil, August saw unexpected deflation, the first since June 2023. The National Consumer Price Index (IPCA) fell by 0.02% month-over-month, surprising economists who had predicted a slight 0.01% rise.

Despite this easing, the 12-month inflation rate of 4.24% remains above the central bank’s 3% target, keeping pressure on policymakers.

André Valério, a senior economist at Inter, commented that the result wasn’t sufficient to alleviate pressure on the Central Bank.

Markets still anticipate an interest rate hike in the coming week, as the recent unanchoring of inflation expectations weighs heavily on the Monetary Policy Committee’s decisions.

Globally, the dollar index rose 0.05% against major currencies. China’s economic data cast a shadow over emerging markets, with August import growth slowing sharply to 0.5% from July’s 7.2%.

In addition, this disappointing figure raised concerns about global trade and economic growth prospects.

Commodity markets felt the impact, with oil and iron ore prices dropping significantly. This decline further pressured the currencies of commodity-exporting nations like Brazil.

Attention now turns to the US Consumer Price Index report due Wednesday. This data could reshape Federal Reserve policy expectations.

Current market sentiment shows a 67% probability of maintaining interest rates at 5.00-5.25%, with a 33% chance of a cut to 4.75-5.00%.

Lower US rates typically weaken the dollar as investors seek higher yields elsewhere. However, global economic uncertainty is currently boosting the greenback’s safe-haven appeal.

LatAm Markets: Live Signals → — real-time movers, turnover leaders and FX across Latin America.