Dollar Rises for 10th Consecutive Day and Closes at New Record R$4.511

RIO DE JANEIRO, BRAZIL – The commercial dollar hit its 10th consecutive high, up 0.54 percent, and closed the day quoted at R$4.511 on sale. This is the highest nominal value (excluding inflation) at closing. The dollar has accumulated a 12.41 percent appreciation over the Real in 2020.

It was a day of high instability in global markets. The US Federal Reserve held an emergency meeting and announced a 0.5 point cut in interest rates, which had not occurred since the 2008 crisis.

This increased fears that the impact of the coronavirus on the US and global economies may be greater than expected. Other countries -including Brazil- are expected to take similar measures to try to contain the effects of the epidemic.

The dollar dropped sharply after the Fed’s announcement, but then rebounded to its upward trend.

The value of the dollar reported daily by the press, refers to the commercial dollar. For those traveling and needing to buy currency at exchange houses, the value is much higher.

Interest rate cut in the US

The US Federal Reserve decision to cut interest rates before its next official meeting, scheduled for March 17th and 18th, mirrors the agency’s sense of urgency that it must act to avert the potential for a global recession caused by the new coronavirus.

Although the interest rate cut has cheered up the markets, it has also brought a degree of concern as it means that the Fed is considering real risks of a recession ahead, which helps explain the dollar’s rise abroad.

Central banks around the world have been discussing interest rate cuts to encourage the economy and deal with the economic effects of the coronavirus. Leaders of the G7, the world’s richest group of countries, have pledged to use all appropriate economic policy actions to address the economic impacts of the coronavirus.

Record dollar disregards inflation

The record dollar reached today considers the nominal value, in other words, it disregards the effects of inflation, both in Brazil and in the United States.

Taking into account inflation in both the US and Brazil, the peak of the post-Real Plan dollar occurred at the end of Fernando Henrique Cardoso’s government, just before the election of the leftist president Luiz Inacio Lula da Silva, on October 22nd, 2002. The nominal value at the time was R$3.952 per dollar, but the inflation-adjusted value would now exceed R$7.00.

This correction is significant, because over time inflation changes the purchasing power of currencies. What one could buy with US$1 or R$1 in 2002 is not the same as what one can buy today with the same amounts.

Source: UOL