MercoPress. South Atlantic News Agency

US dollar soars in Brazil amid fiscal uncertainty

Haddad hopes the US dollar will settle down, eventually

Amid uncertainty stemming from President Luiz Inácio Lula da Silva's planned measures, the US dollar soared Wednesday against the Brazilian real, hitting a new record of R$ 6.26 = US$ 1 while the stock market fell above 3%, also driven by the 0.25 percentage point interests cut by the US Federal Reserve (Fed).

In Brazil, the dollar went up 2.78% after mirroring market fears given the Lower House's approval of one of the bills from the Executive, thus reaching the highest quotation since the new currency was introduced in 1994, even despite the government's spending cuts passed by Congress this week. In addition, the Ibovespa index lost 3.15% at 120,771 points, the worst level since June last year.

Investors still fear that Congress may not approve all of Lula's package before the end of the year, which would prolong the anxiety-causing uncertainties. Investors also described Lula's initiatives as “timid” given the need to balance public accounts. They also fear that the proposal will be watered down in Parliament.

Brazil's Central Bank (BCB) has sold over US$ 12.75 billion to keep the US dollar from skyrocketing. Finance Minister Fernando Haddad said that the exchange rate was “floating” but would “settle down” eventually. “We have a floating exchange rate and, at this time when things are pending, there is a climate of uncertainty that makes the exchange rate fluctuate. But I believe it will settle down,” he said. There was no intervention by the Central Bank during Wednesday's trading session.

“There are contacts with us talking about speculation. I prefer to work with the fundamentals, showing the consistency of what we're doing. There may be, but I'm not here to pass judgment on that. These more speculative movements are curbed by intervention from the Treasury and the Central Bank,” he added.

“We have to think in the short term about the dollar and interest rates, but we also have to look at the structural measures that will guarantee a better sustainable growth trajectory for the following period. All in all, if we approve the fiscal measures now, we'll end up with a very positive agenda,” he also pointed out.

The National Treasury canceled its traditional bond auction and announced daily buy-and-sell auctions for the first time since the 2020 Covid-19 pandemic. On Wednesday, the Treasury did not sell new debt securities and repurchased 10% of public bonds. The measure, however, had no effect.