The dollar continued its decline against the Brazilian real for a second consecutive session on Tuesday, closing at R$5.7678, a 0.31% drop.This occurred despite the United States imposing a 25% tariff on aluminum and steel imports.
Investors focused instead on inflation trends and Federal Reserve Chair Jerome Powells remarks, which shaped market sentiment.Globally, the dollar showed weakness as the DXY index, which measures the currency against six major global counterparts, fell 0.37% to 107.951 points by 5 p.m.
Braslia time.Domestically, Brazils January inflation data played a significant role in influencing currency movements.
The Broad Consumer Price Index (IPCA) rose 0.16% in January, slowing from Decembers 0.52% increase.Over 12 months, inflation stood at 4.56%, remaining above the central banks target ceiling.
Bank of America analysts attributed Januarys slower inflation to reduced residential electricity tariffs tied to Itaipus energy bonus program.Dollar Dips as A.I.
Advances in China Shake Markets.
(Photo Internet reproduction)However, they noted that low unemployment levels might delay further disinflation despite signs of economic deceleration in high-frequency data.Brazils Monetary Policy OutlookMonte Bravo economists emphasized that persistent inflationary pressures could prompt Brazils Central Bank to maintain a firm monetary policy stance.They projected a likely 50 basis point hike in May, potentially raising the Selic rate to a terminal level of 14.75% annually.
The real also benefited from rising commodity prices, which offset concerns about United States trade tariffs.Nomad Research Manager Paula Zogbi highlighted that the tariff measures, set to take effect in March, leave room for potential adjustments or delays in implementation.
On the international front, Powells Senate testimony further weakened the dollar.He indicated no urgency to cut United States interest rates, currently at 4.25%-4.50%, citing strong economic fundamentals and significant progress toward policy goals over the past two years.Powell clarified that while the Federal Reserve does not comment on trade policies like tariffs, it focuses on responding to their economic impacts.
Market participants are now awaiting United States Consumer Price Index (CPI) data due on Wednesday.Traders are assigning a 37% probability of year-end interest rates falling to the 4.00%-4.25% range.
This is up slightly from 35% before Powells comments.