Brazil's central bank (Banco Central do Brasil, BCB) is ahead of rate cuts. Economists at Commerzbank analyze BRL outlook.
A less hawkish monetary policy could prove to be a drag on the BRL next year
Today's BCB decision is widely expected to result in a rate cut. The big question is whether the interest rate will be cut by 25 bps or 50 bps. Although the latter is seen as more likely by the market, it would certainly be the more dovish signal that could weigh more heavily on the BRL. However, the new inflation forecasts are likely to have a greater impact on the expected overall size of future rate cuts.
We expect the BCB to emphasize a prudent approach in its accompanying statement and to leave no doubt that it will react promptly to any upside risks to inflation. Its track record gives it a high degree of credibility, which is why we expect the Real to trade at strong levels against the USD for the time being, below 5.00 in USD/BRL terms.
The most interesting question is whether the statement will reflect a possible more dovish signature of the two central bankers newly appointed by President Lula da Silva, Gabriel Galipoli and Ailton Aquino. Because I still fear that a less hawkish monetary policy after the end of BCB Governor Roberto Campos Neto's term in December 2024 could prove to be a drag on the BRL next year.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD weakens further as US Treasury yields boost US Dollar
The Australian Dollar extended its losses against the US Dollar for the second straight day, as higher US Treasury bond yields underpinned the Greenback. On Wednesday, the AUD/USD lost 0.26% as market participants turned risk-averse. As the Asian session begins, the pair trades around 0.6577.
EUR/USD stuck near midrange ahead of thin Thursday session
EUR/USD is reverting to the near-term mean, stuck near 1.0750 and stuck firmly in the week’s opening trading range. Markets will be on the lookout for speeches from ECB policymakers, but officials are broadly expected to avoid rocking the boat amidst holiday-constrained market flows.
Gold price drops amid higher US yields awaiting next week's US inflation
Gold remained at familiar levels on Wednesday, trading near $2,312 amid rising US Treasury yields and a strong US dollar. Traders await unemployment claims on Thursday, followed by Friday's University of Michigan Consumer Sentiment survey.
Bitcoin price drops, but holders with 100 to 1000 BTC continue to buy up
Bitcoin price action continues to show a lack of participation from new traders, steadily grinding south in the one-day timeframe, while the one-week period shows a horizontal chop. Meanwhile, data shows that some holder segments continue to buy up.
Navigating the future of precious metals
In a recent episode of the Vancouver Resource Investment Conference podcast, hosted by Jesse Day, guests Stefan Gleason and JP Cortez shared their expert analysis on the dynamics of the gold and silver markets and discussed legislative efforts to promote these metals as sound money in the United States.