BRL: The central bank strikes back – ING

FXStreet Insights Team FXStreet

Brazil's central bank, BCB, aggressively hiked rates by 100bp to 12.25% last night and promised two further hikes of a similar magnitude, ING’s FX analyst Chris Turner notes.

USD/BRL can go back to 5.80/85 today

“The phrase 'getting ahead of the curve' seems appropriate here as the BCB delivers a forceful signal that the rise in inflation expectations will not be tolerated. In addition, BCB announced a $4bn FX auction today to provide liquidity to the spot market. This aggressive move could carry USD/BRL back to 5.80/85 today.”

“However, this aggressive rate hike is entirely down to the loose fiscal policy of the Lula administration and the damage it has done to the exchange rate. Unless some credible fiscal consolidation package is announced, the BRL will stay vulnerable.”

“Our position is that fiscal consolidation will be difficult in the run-up to the 2026 Presidential election, and combined with the new US administration's trade war on China – and the threat of secondary sanctions on Brazil – USD/BRL will probably head up to the 6.25 area.”

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

EUR/USD turns negative near 1.1850

EUR/USD has given up its earlier intraday gains on Thursday and is now struggling to hold above the 1.1850 area. The US Dollar is finding renewed support from a pick-up in risk aversion, while fresh market chatter suggesting Russia could be considering a return to the US Dollar system is also lending the Greenback an extra boost.

GBP/USD change course, nears 1.3600

GBP/USD gives away its daily gains and recedes toward the low-1.3600s on Thursday. Indeed, Cable now struggles to regain some upside traction on the back of the sudden bout of buying interest in the Greenback. In the meantime, investors continue to assess a string of underwhelming UK data releases released earlier in the day.