Dollar Rises on Caution on US Debt; market digests IPCA-15 By Reuters

By Luana Maria Benedito

SAO PAULO (Reuters) – The rose against the real on Thursday, following the rise of the US currency abroad after the risk rating agency Fitch adopted a negative outlook for the credit rating of the United States, as it approaches the deadline for the government and Congress to reach an agreement to raise the country’s debt ceiling before a catastrophic default.

Meanwhile, in Brazil, investors were digesting a lower than expected increase in the IPCA-15 in May.

At 9:47 am (Brasília time), the spot dollar advanced 0.62%, to 4.9843 reais on sale.

On B3 (BVMF:), at 9:47 am (Brasília time), the first maturity contract rose 0.45%, to 4.9885 reais.

This high was in line with the advance of 0.30% in the index that compares the US currency to a basket of strong peers.

“Markets operate cautiously, with an impasse over US debt still on the radar,” said Bradesco’s research and economic studies department (BVMF:) in a report. “The difficulty of the US Congress to reach a consensus on the debt ceiling increases the risk that the government will not be able to make the payment of some commitments.”

Negotiators for US President Joe Biden, a Democrat, and US Congressional Republican Leader Kevin McCarthy conducted what the two sides called productive talks on Wednesday.

However, credit rating agency Fitch put a negative outlook on the US credit rating of “AAA”, citing growing political disputes over the country’s debt ceiling, which has raised borrowing costs. US short-term debt to more than 7%.

The dollar, the world’s reserve currency, is always one of the most sought after assets by investors in times of economic uncertainty. A default on the United States would likely wreak financial and economic havoc globally, given the central position of the United States in international markets, experts say.

In Brazil, the IPCA-15 rose less than expected in May despite strong pressure from milk and medicine prices, with the 12-month rate retreating to the lowest level in about two and a half years, in the latest sign of relief inflationary.

“IPCA-15 well below expectations and with better quality. Number should give additional support to the improvement of local assets”, wrote Dan Kawa, director of investments at TAG Investimentos.

The day before, the dollar in sight closed the day quoted at 4.9534 reais on sale, down 0.38%.