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Friday, May 15, 2015

Brazil Real Leads Gains as Fed Outlook Overshadows Levy Setback

Brazil’s real led global currency gains as speculation the Federal Reserve will keep interest rates low overshadowed a setback in Finance Minister Joaquim Levy’s efforts to cut spending.

The real rose 1.4 percent to 2.9982 per U.S. dollar at 2:49 p.m. in Sao Paulo, the biggest increase among the 31 major currencies tracked by Bloomberg.

The local tender benefited as subdued inflation in the U.S. added to bets the Fed will hold interest rates near zero for most of the year, supporting higher-yielding assets from emerging markets.

At the same time, congressional budget votes in Brazil may affect trading, according to Camila Abdelmalack, an economist at CM Capital Markets in Sao Paulo.

“Economic data in the U.S. is causing the dollar weakness across the board,” Abdelmalack said by phone. “Still, today will be all about volatility as markets are closely watching the congressional votes on the measures to help shore up government finances in Brazil.”

Wednesday’s approval in the lower house of higher benefits for pensioners was the first major setback in Congress for Levy, who favors raising taxes and cutting spending to help avoid a junk credit rating.

The vote came just hours after legislators passed the basic text of a broader bill designed to shore up fiscal accounts by limiting pension payments for surviving relatives.

Swap rates on the contract maturing in January 2017, a gauge of expectations for changes in borrowing costs, dropped 0.03 percentage point to 13.50 percent.

While Brazil halted at the end of March the sale of currency swaps supporting the real and limiting import price increases, the central bank is still doing rollovers, extending the maturity Thursday on contracts worth $394.3 million.

 In the U.S., the Labor Department reported that wholesale prices unexpectedly declined in April from the prior month, indicating that inflation is well-contained as Fed officials consider when to raise the benchmark interest rate.

bloomberg.com

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