The Brazilian real weakened against the U.S. dollar on Thursday, despite the central bank's implementation of a significant interest rate increase and indications of further hikes in the future. The real, which initially rose 1% at the beginning of the trading session, ended up declining by 0.9%, closing at 6.01 to the dollar.
This shift in the real's value occurred alongside a widening of the long end of Brazil's yield curve, which reversed its initial downward trajectory.
The depreciation of the real was already underway when it was accelerated by comments from presidential spokesman Paulo Pimenta. Pimenta's revelation that President Luiz Inacio Lula da Silva intends to seek re-election in 2026 added to the market's concerns.
President Lula, a 79-year-old leftist leader, is currently hospitalized following surgeries to address bleeding in his skull, and this has led to increased speculation about his ability to run in the upcoming election.
These fiscal concerns were already at the forefront of the central bank's considerations when it decided on Wednesday to raise interest rates by an unexpected 100 basis points, bringing the rate to 12.25%.
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