Mon Dec 23 13:00:00 UTC 2024: ## Brazilian Real Plunges to Record Low Against the Dollar, Sparking Concerns

**São Paulo, Brazil** – The Brazilian real (BRL) plummeted to a record low against the US dollar (USD) on Thursday, December 19th, reaching R$6.30 before recovering slightly after the Central Bank intervened with two US$8 billion auctions to curb the dollar’s rise. The dollar closed at R$6.12, marking the third consecutive day it surpassed the R$6.20 mark.

This sharp devaluation has cemented the real as the worst-performing major currency in 2024, experiencing a nearly 21% depreciation against the dollar since the start of the year (from R$4.85 to R$6.12). Only four other major currencies – the Mexican peso, Turkish lira, Russian ruble, and South Korean won – suffered double-digit losses against the dollar. The decline comes amidst a global trend of weakening currencies against a strengthening USD.

The dollar’s strength is primarily attributed to the US Federal Reserve’s interest rate hikes implemented to combat inflation. These higher rates attract global capital, increasing demand for the dollar and weakening other currencies, particularly those in emerging markets like Brazil. Expectations that the Fed would cut interest rates were dashed by persistent inflation and a stronger-than-expected US economy, delaying the anticipated capital flow reversal.

The situation has been exacerbated by the November US election victory of Donald Trump, whose policies are perceived as potentially inflationary, further hindering interest rate cuts and supporting a stronger dollar. In Brazil, concerns over the government’s fiscal package and persistent inflation, coupled with a recent interest rate hike by the Central Bank (Copom), have fueled the real’s decline.

While there is some market expectation of a future dollar decline, with projections suggesting a gradual strengthening of the real in the coming years, these predictions are consistently being revised upwards, indicating less optimism for a significant recovery in the near future. The ultimate trajectory of the real will depend largely on global currency trends and the effectiveness of the Brazilian government’s economic policies in controlling inflation. The incoming Trump administration’s plans for a weaker dollar are seen by some market analysts as potentially having the opposite effect, leading to further dollar strength.

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