Dollar hovers around R$4.90 with fiscal risk in Brazil and monetary policy on the radar

O dollar rose 0.40%, quoted at R$ 4.893, around 9:22 am this Wednesday (8), favored by a withdrawal of investments in Brazil due to investor fears about a possible fiscal lack of control by the federal government.

The cause of this movement was the announcement of a Proposed Constitutional Amendment (PEC ) that seeks reduce fuel prices .

The idea is to exempt federal taxes on diesel and gas, and create a fund to financially compensate states that exempt ICMS from charging Gasoline . The economic team estimates an impact of around BRL 40 billion in public accounts .

There is still an aversion to risk around the world, which favors the dollar, as the week counts with the monetary policy meeting of the European Central Bank (ECB ), which may signal a rise in interest rates to face inflation in the euro zone, and with the inflation data in the United States which will give more clues about the possible next steps of raising interest rates in the country.

O central bank will auction up to 15,000 traditional foreign exchange swap contracts in this session for the purpose of rolling over the expiration date on August 1, 2022. The BC operation can help provide liquidity in the currency, but experts consulted by the CNN Brasil Business point out that the body could do more to contain exchange rate volatility .

On Tuesday (7), the dollar had a high of 1.63%, to R$ 4.874, in the biggest percentage change since May 5 (2.34%) and with the highest value since May 19. already the Ibovespa retreated 0.11%, to 110,069.76 points, the lowest score since May 20.

overall feeling

Investors still maintain a strong global risk aversion triggered by fears about a possible general economic slowdown due to a series of interest rate hikes around the world to contain record levels of inflation, which would harm many types of investments.

The main cause for this aversion is the cycle of high interest rates in United States with the most recent increase announced by the Federal Reserve on May 4th. The autarchy has already ruled out 0.75 percentage point hikes in interest rates, or a risk of taking the country’s economy into a recession, but signaled at least two more hikes of 0.5 pp.

Higher interest rates in the United States attract investments to the country’s fixed income due to its high security and favor the dollar, but harm bond markets and stock exchanges around the world, including the US.

At the same time, the market follows the data on the country’s economy to understand how aggressive the Fed could be in the process. THE confirmation of the contraction of the US economy in the first quarter, for example, reinforced the view that the autarchy should not be as aggressive in raising interest rates as expected.

On the other hand, with the end of lockdown in the Chinese city of Shanghai and easing restrictions in the capital Beijing, Chinese demand is expected to return to previous levels, which again favored commodity exporters and relieved some of the pressure on the real.

With the two novelties, the Ibovespa and the real found room for appreciation. Any change in these perceptions, however, harms both.

*With information from Reuters