Dollar has biggest daily jump in 5 months with global risk aversion, but falls in the week

By Luana Maria Benedito

SAO PAULO (Reuters) – The dollar soared at its sharpest pace in five months against the real on Friday, driven by global risk aversion as major central banks aggressively raise interest rates, turning a recession every increasingly likely.

The spot US currency gained 2.59%, at 5.2483 reais on sale, the highest daily appreciation since April 22 (+4.07%) and the highest closing level since the last day 16 (5.2609 reais ).

Despite this jump, the dollar still registered a drop of 0.24% compared to the closing of last Friday, after suffering significant losses on Monday (-1.79%) and on Thursday (-1.12%).

On B3, at 17:14 (GMT), the first-maturity dollar futures contract rose 2.64% to 5.2630 reais.

The international mood – which had been pessimistic for days – worsened on Friday after data from Europe’s Purchasing Managers’ Index (PMI) provided new evidence that countries in the region may be entering recession.

“It is such an uncertain scenario, so bad, and risk aversion is so great that it makes capital quickly flee from there (Europe), a factor that supported the dollar today,” Matheus Pizzani, an economist at CM Capital, told Reuters. .

And the determination of the main central banks to continue tightening monetary policy in order to contain inflation has exacerbated economic fears, added the expert, as higher interest rates tend to restrict consumption.

In the US, the economy has proven to be more resilient than in Europe, which may provide even more arguments for the Federal Reserve to continue to drive its tightening cycle – interest rates have already risen 3 percentage points since March this year, compared to level close to zero. The Fed’s most recent hike of 0.75 points was announced on Wednesday.

The dollar is considered a safe bet in times of economic or geopolitical turmoil. This afternoon, a currency index against a basket of strong pairs soared 1.6%, up against all relevant currencies in the world.

The real was a good part of this Friday’s trading among the worst performing currencies in the world, in a better position only than the Chilean peso and the pound. Britain’s currency plunged to 37-year lows after Britain announced tax cuts that are expected to inflate the country’s debt.

Even so, investors have drawn attention to some support points for the real that contributed to the dollar’s fall in the accumulated result for this week.

Among them, the support of former Finance Minister Henrique Meirelles to the candidacy of former President Luiz Inácio Lula da Silva (PT) to the Planalto, announced earlier this week, which reinforced hopes for an austere fiscal policy in an eventual PT government.

In addition, Pizzani, from CM, assessed that the Brazilian electoral race is not having the negative impacts on the foreign exchange market that many experts expected at the beginning of the year. And he hopes that, if the elections take place “peacefully”, they will continue to not generate as much volatility.

Also playing in favor of the real is the high level of the Selic rate, maintained at 13.75% by the Central Bank at its last monetary policy meeting, which ended on Wednesday, with signs that the high level will persist for longer than expected. by the market.

Higher borrowing costs make the carry (interest rate return) of the real more attractive to foreign investors.

CM Capital expects the dollar to end this year at 5.42 reais, which would require an appreciation of 3.27% in relation to the current price.

This Friday, the Central Bank sold USD 2 billion in currency sale auctions combined with purchase auctions on the interbank market, a tool it usually uses in times of lack of liquidity in the spot foreign exchange market.

(Edited by José de Castro)

The article is in Portuguese

Tags: Dollar biggest daily jump months global risk aversion falls week

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