A survey by Austin Rating consultancy found that only three foreign currencies had bigger drops against the U.S. Dollar in July than the Brazilian Real. Last month, the currency lost 10.1 percent of its value.
High inflation and fear of a global recession are prompting investors to be more risk-averse. And a run for U.S. treasury bonds — the world’s safest asset — has pushed the USD value against other currencies up, especially those from emerging economies.
Additionally, concerns of mounting fiscal risk in the Brazilian domestic economy have sparked a Brazilian Real selloff. For Mário Sérgio Lima, an analyst at Medley Global Advisors, the government’s efforts to lower fuel prices at the pump — including a bill jacking up spending on social policies — create a scenario of less predictability for foreign investors.
“These measures send a bad message that fiscal rules may exist, but they can be easily disregarded if the government wants to,” he told The Brazilian Report.
The latest losses offset most of the Brazilian currency’s early gains in 2022. In the first five months of the year, the Real had gained over 16 percent against the USD. At the beginning of the year, the Brazilian currency had the best performance among 38 currencies tracked by the International Monetary Fund.
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