US Dollar Closes below R$ 3.70 after Major Intervention by Brazilian Central Bank

05/22/2018 - 11h22

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ANAÏS FERNANDES

FROM SÃO PAULO

A major escalation in intervention by the Brazilian Central Bank (BC) impacted the currency exchange market on Monday (the 21st) and interrupted six consecutive days of climbing valuation for the US Dollar.

The currency ended the day down by 1.36% at R$ 3.668 (commercial) while the spot market closed down 0.9% at R$ 3.71.

Last Friday (the 18th), the BC had announced that it that it was offering 15 thousand additional currency exchange swaps totaling US$ 2 billion. The operation is equivalent to selling dollars on the futures market. Up until now, the BC had been offering daily auctions of 5 thousand contracts.

"The market seems to be respecting the BC's intervention", said Cleber Alessie, from HCommcor brokerage.

In the six previous sessions, the American currency had increased by 5.5% against the Brazilian Real, based upon speculation that the United States could raise interest rates more times than had been previously expected.

This kind of speculation generates a flow of Dollars from markets considered to be of higher risk, like Brazil to the North American market. On Monday, the Dollar advanced against 16 of the world's 31 top global currencies.

Even considering the BC's more forceful intervention, the American currency's trajectory is unlikely to be altered significantly in the long run.

"The fact that the market is [currently] respecting the announcement from the BC doesn't mean that the Dollar is going to start to fall", declared Alessie.

Economists interviewed by the BC's own Focus research, released on Monday, raised their forecasts for the Dollar for this year for the fifth consecutive time and now see the US Dollar at R$ 3.43 by the end of the year and R$ 3.45 in 2019. Both rates had been forecasted at R$3.40 in the previous release.

Translated by LLOYD HARDER

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