Porto Alegre, August 11, 2020 – The escalating tension between the United States and China has intensified the risk aversion in markets, which supported a new advance of the dollar, especially against the emerging currencies. The growing stress between the world’s two largest economies has gained another chapter with Trump demanding that transactions with Chinese applications TikTok and WeChat be stopped in 45 days. The strong payroll helped soften, but it was not enough to reverse the market stress. Data on the labor market showed the creation of 1.8 million jobs in July, above the 1.617 million expected by the market. The unemployment rate fell to 10.2%, below the 10.7% expected by the market.
The lack of an agreement in the U.S. Congress to approve the USD 1 trillion bailout to fight coronavirus also generates caution amid traders. The fact is that the dollar rose 1.25% and closed last Friday at BRL 5.4120. The accumulated gains in the first week of August hit 3.76%, with the U.S. currency recovering the level of BRL 5.40.
In Brazil, the market still assimilates the new 0.25% cut in the Selic rate. The increasing fiscal risk, given the significant depreciation of public accounts and the pledge of extending emergency aid to December, also justifies a more prudent attitude on the part of traders. Of course, this is reflected in the exchange rate. On the internal radar, there is the development of the tax reform, considered shy in its first stage.
The dollar tends to maintain its external focus. Signs of depreciation in the global scenario help support the U.S. currency. The market may test short-term sideways ties, which once surpassed may give new impetus to the bullish movement. The fundamental key point remains the development of the coronavirus vaccine.
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