The dollar renewed its historic high this Monday (2) and closed at R$6,068, an increase of 1.13%. And the reasons for this new spike are the same ones that have moved the markets in recent weeks: the fiscal measures announced by the Brazilian government and the threat from the United States to raise import tariffs.
This Monday, the news that weighed most on the market was the threat made by Donald Trump, president-elect of the United States, to raise import tariffs from Brics countries, a group of which Brazil is part. If these countries do not commit not to launch a new currency or support another currency that replaces the dollar, the Republican said he will impose 100% tariffs on their products.
Trump’s protectionist stance is causing the dollar to appreciate all over the world, not just in Brazil. So much so that the DXY index, which measures the strength of the dollar against a basket of six currencies from developed markets, rose 0.67%, to 106,446 points, at the end of the afternoon.
But, in the local market, the effect of the strengthening of the dollar ends up gaining even more space. This is due to growing concern about the fiscal scenario. And it has become even more acute since the release of the spending cut package, announced together with the government’s intention to exempt those earning up to R$5,000.00 from Income Tax.
This set of proposals left the feeling that the government has little commitment to bringing public accounts up to date. And it provoked a wave of search for safer assets, including the dollar, which surpassed the R$6.00 mark for the first time on Thursday, the day after the announcement.
READ MORE: Dollar will face an even more challenging December due to Trump and inflationary risks
On Friday, the market even showed some relief after a kind of coordinated action in Brasília generated some good news. One of them were the statements by the presidents of the Chamber, Arthur Lira (PP-AL), and the Senate, Rodrigo Pacheco (PSD-MG), that Congress can support the approval of the spending cutting measures proposed by the government. But this support is unrelated to the IR exemption proposal.
Another piece of news that helped improve the climate, at least in the short term, was the appointment of economist Nilton David, head trader from Bradesco bank, to take over the Monetary Policy directorship from January, replacing Gabriel Galípolo. The name was considered “better than expected” due to having a technical profile and a lot of experience in the financial market, a condition considered essential to perform the role.
READ MORE: Lula appoints Bradesco trader to BC’s Monetary Policy directorate and helps ease market tension
But the positive effect was short-lived. So much so that, as often happens in moments of nervousness, the discussion about a possible intervention by the Central Bank in the exchange rate returned to the agenda. Galípolo, future president of the BC, has already warned that he will not “hold the dollar close to his chest”.
In other words, volatility remains on the horizon.
