USD/BRL likely to trade around 3.35 by end-2017, says Lloyds bank
Source: FxWire Pro - Commentary / 21 Jun 2017 18:56:06 Eastern Standard Time
The USD/BRL currency pair rose to a five-month high of 3.41 as elevated political risk in Brazil appeared set to dampen efforts towards a balanced budget, noted Lloyds Bank in a research report. Since news broke that Brazil’s President Michel Termer might have been involved in a bribery scandal, the currency pair has reversed some of its gains, to consolidate closer to 3.30.
Still, the risk is that pension reforms, needed to put Brazil’s finances on a stronger footing, would now be delated or fail to materialise has increased dramatically, stated Lloyds Bank. In the absence of improved finances, increased upward pressure on USD/BRL is required to permit Brazil to balance externally. This, along with lower inflation might suggest why the Central Bank of Brazil has continued to ease monetary policy rather than attempt to defend the currency.
Brazil’s emergence from recession in the first quarter proves that better economic performance does not necessarily translate into a stronger exchange rate. According to Lloyds Bank, the USD/BRL pair is expected to trade at around 3.35 by the end of this year and at 3.40 by the end of 2018.
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