Dollar breaks the level of BRL 5.00 with global inflation and fiscal risk

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     Porto Alegre, June 14, 2022 – Concern is growing about the highest inflation in 40 years in the United States, which reinforces the idea of a tougher Fed at the next Fomc meeting. And of course, this fuels greater risk aversion. The US inflation in May stood at 1%, projecting an increase of 8.6% in the last 12 months. The data were very bad by indicating that inflation is far from its peak and uncontrolled. Associated with the worrying external scenario, there was also a resurgence of fiscal uncertainties in Brazil, with the proposal to control fuel prices. This scenario of greater stress justifies a more cautious posture on the part of traders, which helps to keep the dollar appreciated. The DXY index is above 104 points, while the dollar is once again being sold above BRL 5.00.

     Escalating oil prices are also worrying, as they feed the global inflationary spiral. The war in Ukraine, the uncertainty over the grain corridors, and the European Union’s embargo on Russia’s oil remain on the radar. There is a high chance of a recession in Europe during the second half of the year, but uncontrolled inflation is also a concern there.

     The high Selic rate and the price of commodities favor the inflow of resources into Brazil. The privatization of Eletrobrás is another favorable point on the flow side. Although the inflow should be lower than previous ones, it should still help to contain the dollar’s rise.

     In general terms, the US currency should continue to seek guidance in the foreign market. On the other hand, indications of weak growth, high inflation and especially Brazil’s long-term fiscal fragility keep investors on the defensive. The improved first-quarter GDP in Brazil was not able to change this impression, with traders indicating that the bill may come in the second half of 2022, which must help to support the dollar.

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