Dollar remains outside and has a slight fall against the real

The dollar started the week with a slight drop against the real, following the weakening of the US currency abroad, but traders warned of the possibility of volatility on Monday (29) marked by international caution after authorities of major central banks have indicated maintenance of a rigid posture in its fight against inflation.

At 9:07 am (GMT), the spot dollar retreated 0.14%, to R$ 5.0721 on sale.

On B3, at 9:07 am (GMT), the dollar futures contract with the first maturity rose 0.10% to R$5.0750.

On Friday (26), the commercial dollar closed down 0.60%, quoted at R$ 5.0780, despite the prospect of higher interest rates in the United States after the speech of Fed President Jerome Powell in Jackson. hole.

The scenario abroad favorable to raw materials exported by Brazil, such as oil and food, is pointed out by analysts as the main reason for the resistance of the real against the dollar.

At the central bank symposium, Powell made it clear that interest rates in the United States will continue to rise until inflation falls to a level considered safe, even if this causes a sharp slowdown in the economy.

“A failure to restore price stability would mean much greater pain,” Powell said on Friday.

Stock markets in major global economies plummeted after Powell’s speech.

In Brazil, the Ibovespa index, a reference for the Stock Exchange, dropped 1.09%, to 112,298 points.

In New York, the three main indicators of the stock markets melted. The S&P 500, the benchmark for the New York Stock Exchange, plunged 3.37%.

The Nasdaq, focused on technology stocks and made up of companies more dependent on cheap credit, tumbled 3.94%.

The Dow Jones tumbled 3.03%. This index tracks the shares of three dozen high-value companies and tends to have a slightly smaller impact in a scenario of high interest rates.

In Europe, the indicator that tracks the region’s top 50 companies closed down by 1.93%. The Frankfurt Stock Exchange (Germany) fell 2.26%.

Taking a short-term view, the market looked to the Jackson Hole symposium for clues about the size of the interest rate hike the Fed will approve at its Sept. 20-21 meeting.

In a scenario where the Fed considers the need to aggressively continue raising the rate, analysts estimate a 0.75 percentage point increase in the rate, currently at 2.5% per year.

This was the increase applied in the last two meetings of the monetary authority.

For those who expect a more lenient stance, the rate is expected to rise by 0.50 percentage point. After Powell’s speech, though, it’s possible that the 0.75% stakes will gain a little more traction.

In his speech this Friday in Jackson Hole, the chairman of the Fed emphasized that the tightening of the credit rate will “continue until the work is done”, addressing the speech precisely to the part of the market that is most optimistic about the possible proximity of the end of the cycle of interest rate hikes in the US.

Why interest rates in the US affect Brazil

Interest and inflation in the world’s main economy have an impact on the fluctuation of exchange rates and the prices of shares traded on Stock Exchanges around the world. They also affect public and private investments and job creation in the world.

The group responsible for discussing these issues in the United States is called Fomc, which stands for Federal Open Market Committee.

These advisers discuss the federal funds interest rate target at eight meetings throughout the year. The task is similar to that of the Copom (Monetary Policy Committee) of the Central Bank of Brazil.

The rate of the Fed’s market operations influences the interest charged on loans that private banks make to each other, an important instrument for the daily cash adjustment carried out by financial institutions.

Interest on transactions between banks is reflected in the cost of credit in general, such as personal loans, real estate financing and others.

Controlling credit is a way of regulating the amount of money in circulation and, consequently, keeping inflation at acceptable levels. It’s what economists call monetary policy. This is the basic mission of central banks.

When interest rates are low, credit becomes more accessible. The low cost of borrowing encourages people to buy goods and consume. Companies put projects in progress and generate more jobs.

That’s why Fomc lowered its interest rate target to zero when the Covid pandemic paralyzed global economic activities in March 2020. The idea was to put more money into circulation through loose credit and thus avoid an explosion of layoffs.

In times of abundant and cheap money, large investors are more willing to buy shares in companies from emerging economy countries, such as Brazil, a type of investment considered risky due to the instability of these markets. The resources allow business growth and the generation of work and income.

Contrary to the generous offer of cheap credit, the tightening of monetary policy (raising interest rates) in the United States harms Brazil and other emerging countries because, simply, there is less capital available for investment.

By raising interest rates, the Fed raises the reward for those who invest in the US Treasury, whose risk of losses due to a default is considered non-existent.

With a safe option paying more, investors are more selective. Many give up on the shares of companies, especially the riskier ones.

Other central banks are forced to raise interest rates to convince investors that the return offered by their sovereign bonds is worth the risk they take by not bringing their dollars to the US.

If dollars return to US fixed income on a large scale, the exchange rate soars and import costs soar. Raw materials, whose prices are dollarized, are also more expensive in the domestic market. That makes inflation go up around here.