The Brazilian real ended Tuesday's trading session at R5.20/$1, the strongest closing level since May 2024 and a near 14pc appreciation in 12 months.
The Brazilian currency has been strengthening sharply since 23 December, when it weakened to roughly R5.59/$1, partly thanks to the central bank's firm maintenance of the target rate at 15pc since June last year, according to Milene Dellatore, director at Brazilian prop firm MIDE. Brazil's central bank, which is expected to hold its target rate unchanged at a policy meeting on Wednesday, is only expected to begin cutting rates again in March.
Additionally, there is widespread perception of "institutional stability in the short term", which translate into "a favorable moment for global capital flows" into the country, she said.
But the real's strength also reflects a global weakening of the US dollar. The US dollar index (DXY), which tracks the greenback against six peer currencies, fell for a fourth consecutive session on Tuesday, hitting its lowest since February 2022
Political uncertainty in the US — including "[President] Donald Trump's more volatile rhetoric" have helped pressure the US currency downwards, Dellatore said. Investors are seeking assets in emerging and other markets away from the US as a result, which is also contributing, she added.
Renewed fears of a US government shutdown have also weighed on the US currency this week.
Investors are awaiting the results of the US Federal Reserve's first policy meeting of the year on Wednesday, which is widely expected to result in no change for the fed funds rate.
Also helping boost the real, Brazil's headline inflation decelerated to an annual 4.26pc in December — lower than market expectations, a second source said.
