The Brazilian real weakened against the US dollar on Thursday, despite the implementation of a significant interest rate hike by the central bank and indications of further rate hikes in the future. The real, which initially rose 1% at the start of the trading session, eventually fell 0.9% to close at 6.01 against the dollar.
This shift in the real’s value occurred alongside a widening of the long end of Brazil’s yield curve, reversing its initial downward trajectory.
The real’s depreciation was already underway when it was accelerated by comments from presidential spokesman Paulo Pimenta. Pimenta’s revelation that President Luiz Inacio Lula da Silva plans to seek re-election in 2026 added to market concerns.
President Lula, a 79-year-old left-wing leader, is currently in hospital after operations to fix bleeding in his skull, and this has led to increasing speculation about his ability to run in the upcoming elections.
These budget concerns were already at the forefront of the central bank’s considerations when it decided on Wednesday to raise interest rates by an unexpected 100 basis points, bringing the interest rate to 12.25%.
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