U.S. Dollar Closes at Highest Rate in Almost Two Years

By Lise Alves, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – The Brazilian real registered another day of registered heightened volatility on Wednesday, with the U.S. dollar closing at its highest rate in almost two years. After surpassing the R$3.51/US$1 mark in the early afternoon, the exchange rate closed at R$3.486/US$1, up by 0.48 percent.

Economists say the instability is likely to continue due to both international volatility and the uncertainty of the domestic political scenario.

“We are seeing a change of mood in the world,” Roberto Padovani, economist at Banco Votorantim, told TV channel Canal Rural. “Brazil today is a risky market, a speculative market and therefore we suffer with this change of global stance.”

The day was also tense in the stock market. The Ibovespa index, on the São Paulo Stock Exchange, closed the day down by 0.5 percent, at 85,044 points. It was the second consecutive day of declines.

According to economists, in addition to the domestic political uncertainties related to October’s Presidential elections, data in the US indicates that the inflation in the North American country may be higher than expected. This has led to an increase in demand for US Treasury bonds, considered the one of the safest investment in the world.

The current depreciation of the Brazilian currency discourages those planning to travel abroad in the next few months. Not even the very positive data from Brazil’s Central Bank, on volume spent abroad by Brazilians, has eased travelers worries.

“I was planning to visit my grandson in Boston in September, but with the surge of the dollar, airline prices have become abusive,” 72-year-old Tereza Musso told The Rio Times. “I will wait to see if the [Brazilian] real reacts; if not, I guess this is not the year I’ll visit him,” she added

Earlier Wednesday the Central Bank announced that expenses of Brazilians abroad totaled US$4.932 billion, in the first quarter of this year. The result was also the highest for the period (Q1) in three years, leading officials to speculate that the Brazilian economy was finally starting to warm up and consumers were more optimistic about the months ahead.