Jun 3 / Guilhermo Marques

Exchange rate: Performance of the Brazilian currency and what to expect

  Back to main blog page

Brazilian currency behavior

During a week that included a holiday in the United States, the Brazilian real fell against the dollar, closing the week at R$5.7229. The currency remained relatively stable until Thursday, when it reached R$5.6663. Friday's trading session was more volatile, causing the currency to rise 1.51% over the course of the week. By the end of May, the real had depreciated 0.87% against the dollar.

BRL/USD Weekly Performance

Source: Reuters, Hedgepoint

• Weekly variation: +1.51%
• Low: R$ 5.6349 (May 27th)
• High: R$ 5.7400 (May 30th)

Brazilian Domestic Market

Decisions on the IOF tax continue to generate uncertainty in the Brazilian market. Last week, the government's backtracking on taxing international transactions - such as remittances to accounts with the same ownership and purchases of currency in cash - was not enough to calm investors. The unexpected change in tax rates and unclear communication caused fears about the predictability of economic policy.

In addition, the market reacted negatively to signs of a possible relaxation of the fiscal framework, especially after statements by members of the government suggesting a review of primary result targets and the fact that the Moody's rating agency downgraded Brazil's outlook from positive to stable due to the state of the government's public accounts. The fear of higher public spending put pressure on the futures interest rate curve and impacted the exchange rate, with the dollar once again approaching R$5.70 over the course of the week.

As a result, the Ibovespa accumulated a weekly drop, ending Friday (30/05) down 1.09% at 137,062 points, also influenced by a weaker performance in sectors linked to domestic consumption and banks.

International Overview 

United States

The US market went through the week in a cautious mood, with investors digesting mixed economic data and expectations about monetary policy. The highlight was the PCE (Personal Consumption Expenditures) inflation index, closely monitored by the Federal Reserve, which showed a variation of 0.2% in April, in line with expectations. On an annual basis, the core decelerated to 2.8%, reinforcing the perception that inflation is moving towards the Fed's 2% target - albeit slowly.

With regard to interest rates in the United States, the Federal Reserve Bank (FED) continues to monitor the levels of economic activity, inflation and trade to determine the next steps regarding possible moves. The market consensus is for at least one rate cut in September, with a possible second cut in December. However, nothing very solid has yet been indicated by the FED.

Last Friday (30), US President Donald Trump announced that he would double tariffs on steel and aluminum from 25% to 50%, adding further tensions to the negotiations between the US and China over trade tariffs.

There are factors that could reinforce the projection of a slowdown in the US economy, especially if we look at the last week of May 2025. The contraction of GDP in the 1st quarter by 0.3%, the increase in applications for unemployment insurance for the week ending May 24, trade tensions with major global economies, the rise in treasury bond yields - explained by Hedgepoint in the weekly report of May 27 - and the possible cooling of confidence among CEOs and major companies in the US.

Ukraine vs. Russia

Ukraine carried out a dramatic series of attacks on the whole of Russia with drones taking off from hidden trucks and timber containers in the interior of the country, disabling 40 Russian aircraft, some of which were even nuclear-capable. This caused Brent to rise, ignoring announcements of increased production by OPEC. Further tensions over a possible reciprocal action by the Russian army should draw attention this week.

Mexico

The Bank of Mexico has negatively revised its growth projection for the country in 2025, projecting a GDP expansion of just 0.1%, down from the 0.6% previously forecast. This reduction reflects a combination of factors, including a weakened domestic economy, a low rate of investment and consumption, as well as global uncertainties over the country's progress in trade negotiations with the US. The International Monetary Fund (IMF) projects a 0.3% contraction in Mexico's GDP by 2025

In a nutshell

In a week marked by fiscal pressures in Brazil and growing signs of a global economic slowdown, the dollar gained strength against the real, reflecting investors' risk aversion in the face of domestic and international uncertainties. The combination of deteriorating confidence in Brazil's fiscal policy, negative growth revisions in emerging countries such as Mexico and the strengthening of the dollar against the external backdrop contributed to the USD/BRL's weekly rise of 1.51%.

On the international scene, US inflation data still doesn't guarantee immediate interest rate cuts by the Federal Reserve, while geopolitical tensions - such as the conflict between Ukraine and Russia - and trade tensions - especially between the US and China/Mexico - reinforce global caution. These elements add volatility to emerging currencies and keep the dollar sustained at high levels.

Over the next few days, attention will continue to be focused on developments in the Brazilian fiscal scenario, new inflation data in the US and developments in geopolitical tensions, which should continue to influence the behavior of the exchange rate and global risk appetite.

Written by Guilhermo Marques
guilhermo.marques@hedgepointglobal.com
Reviewed by Luiz Fernando Roque
luiz.roque@hedgepointglobal.com
www.hedgepointglobal.com

Disclaimer

This document has been prepared by Hedgepoint Schweiz AG and its affiliates (“Hedgepoint”) solely for informational and instructional purposes, without intending to create obligations or commitments to third parties. It is not intended to promote or solicit an offer for the sale or purchase of any securities, commodities interests, or investment products. Hedgepoint and its associates expressly disclaim any liability for the use of the information contained herein that directly or indirectly results in any kind of damages. Information is obtained from sources which we believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. The trading of commodities interests, such as futures, options, and swaps, involves substantial risk of loss and may not be suitable for all investors. You should carefully consider wither such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results. Customers should rely on their own independent judgment and/or consult advisors before entering into any transactions. Hedgepoint does not provide legal, tax or accounting advice and you are responsible for seeking any such advice separately. Hedgepoint Schweiz AG is organized, incorporated, and existing under the laws of Switzerland, is filiated to ARIF, the Association Romande des Intermédiaires Financiers, which is a FINMA-authorized Self-Regulatory Organization. Hedgepoint Commodities LLC is organized, incorporated, and existing under the laws of the USA, and is authorized and regulated by the Commodity Futures Trading Commission (CFTC) and a member of the National Futures Association (NFA) to act as an Introducing Broker and Commodity Trading Advisor. HedgePoint Global Markets Limited is Regulated by the Dubai Financial Services Authority. The content is directed at Professional Clients and not Retail Clients. Hedgepoint Global Markets PTE. Ltd is organized, incorporated, and existing under the laws of Singapore, exempted from obtaining a financial services license as per the Second Schedule of the Securities and Futures (Licensing and Conduct of Business) Act, by the Monetary Authority of Singapore (MAS). Hedgepoint Global Markets DTVM Ltda. is authorized and regulated in Brazil by the Central Bank of Brazil (BCB) and the Brazilian Securities Commission (CVM). Hedgepoint Serviços Ltda. is organized, incorporated, and existing under the laws of Brazil. Hedgepoint Global Markets S.A. is organized, incorporated, and existing under the laws of Uruguay. In case of questions not resolved by the first instance of customer contact (client.services@Hedgepointglobal.com), please contact internal ombudsman channel (ombudsman@hedgepointglobal.com – global or ouvidoria@hedgepointglobal.com – Brazil only) or call 0800-8788408 (Brazil only). Integrity, ethics, and transparency are values that guide our culture. To further strengthen our practices, Hedgepoint has a whistleblower channel for employees and third-parties by e-mail ethicline@hedgepointglobal.com or forms Ethic Line – Hedgepoint Global Markets. “HedgePoint” and the “HedgePoint” logo are marks for the exclusive use of HedgePoint and/or its affiliates. Use or reproduction is prohibited, unless expressly authorized by HedgePoint. Furthermore, the use of any other marks in this document has been authorized for identification purposes only. It does not, therefore, imply any rights of HedgePoint in these marks or imply endorsement, association or seal by the owners of these marks with HedgePoint or its affiliates.

To access this report, you need to be a subscriber.