© Reuters. Counting 100 dollar bills 10/12/2010 REUTERS/Sukree Sukplang
By Luana Maria Benedito
SÃO PAULO (Reuters) – The currency rose against the real this Thursday, with investors reflecting yesterday’s monetary policy decisions by Brazil and the United States and cautious comments from the head of the Federal Reserve, while awaiting an important North American employment report. American.
At 10:28 (Brasília time), the dollar in cash advanced 0.19%, to 4.9480 reais on sale.
On B3 (BVMF:), at 10:28 (Brasília time), the first maturity contract fell 0.01%, to 4.9605 reais.
On Wednesday, the Federal Reserve left the benchmark interest rate unchanged but took a major step toward lowering it in the months ahead in a monetary policy statement that balanced concerns about inflation with other risks to the U.S. economy. and removed a long-standing reference to possible further increases in borrowing costs.
On the other hand, moderating expectations, the chair of the central bank of the United States, Jerome Powell, said that the Fed will need to see more favorable data to be sure that it is time to reduce the basic interest rate, and stated that it is not yet possible to declare victory.
“After Jerome Powell’s speech, reinforcing that he does not intend to start easing interest rates in March, both the Treasury indices rose and (there was) strength in the dollar globally, which ends up directly interfering in emerging markets, considered more risky assets” , said Márcio Riauba, StoneX operations desk manager.
In the wake of Powell’s comments, markets began to see only a 35% chance of a first interest rate cut in March – a scenario that at the end of last year was seen as the most likely. Now, more traders see May as a plausible start to monetary easing.
Meanwhile, “we are on the eve of the release of the American payroll, which will be another very important factor in defining the direction or even anchoring market expectations regarding the Fed’s direction”, added Riauba.
In the U.S. Department of Labor’s nonfarm job creation report to be released on Friday, stronger readings tend to favor a longer-term tough stance, while downside surprises could revive hopes for earlier monetary easing.
In Brazil, the Central Bank decided the day before to make a new cut of 0.50 percentage points in the Selic rate, to 11.25% per year, and stated, in a statement without surprises for market analysts, that its board foresees cuts in the same intensity in the next meetings.
“Our assessment is that the statement came in line with what the market expected, given the maintenance of the pace of monetary easing, reflecting the need to maintain a cautious stance, due to external and domestic uncertainties, especially the risk of a rebound in inflation of Brazilian underlying services in a context of significant fiscal expansion”, said Genial Investimentos in a report to clients.
The maintenance of the Selic rate of decline, with no room for acceleration of the easing, suggests that interest rates will remain at a restrictive level for some time, which should maintain the attractiveness of the real for use in “carry trade” strategies. These consist of taking out a loan in a country with low rates and investing that money in more profitable markets, so that you profit from the interest differential.
The day before, the spot dollar closed the day at 4.9384 reais on sale, down 0.16%. In January, however, the US currency accumulated an increase of 1.79%, largely due to reduced optimism regarding the Fed’s next steps.