27.02.202617:54:48UTC+00Brazilian Real Struggles to Hold Mid-2024 Highs

The Brazilian real is struggling to hold its mid-2024 highs after briefly touching 5.12 per US dollar on February 23, pressured by a resurgence in domestic inflation and renewed global trade uncertainty following the US Supreme Court’s February 20 ruling on IEEPA tariffs. The currency had initially strengthened on the back of an exceptionally attractive real-yield differential, with the Selic policy rate at 15%. However, confidence was rattled when mid-month inflation for February came in at 0.8%, versus a 0.6% forecast, marking the sharpest monthly increase in a year. The upside surprise diminished expectations of a 50-basis-point rate cut at the March 18 meeting and prompted a more hawkish reassessment of the easing path.

Additional pressure came from the US administration’s shift to Section 122 surcharges, which introduced a 10% across-the-board import tax on February 24, posing a direct risk to Brazil’s 17.4% export growth trajectory. While record tax revenues of R$2.89 trillion and a robust January trade surplus of $4.34 billion offer some macroeconomic buffer, the real remains caught between a central bank eager to continue its easing cycle, persistent annual inflation at 4.1%, and a rapidly evolving global trade regime.