06.01.202615:40:55UTC+00Brazilian Real Strengthens for 3rd Session

The Brazilian real appreciated to approximately 5.37 per US dollar after hitting early August lows in late December. This movement reflects improved risk sentiment as concerns over geopolitical tensions, particularly regarding the US action against Venezuela, subsided. The initial demand for the US dollar as a safe haven currency was insufficient to counter the real's strength, which was bolstered by unexpectedly robust domestic data and a more dovish outlook on US policy. Brazil's unemployment rate declined to 5.2% for the quarter ending in November 2025, marking a historic low that surpasses the previous 5.6% figure and forecasts around 5.4%. This indicates a resilient labor market despite persistently high real interest rates. Such conditions bolster domestic consumption and allow the Central Bank to pursue a hawkish policy if disinflationary trends pause. Moreover, Brazil's notably high real yields, with 10-year rates remaining in the double digits, continue to attract portfolio inflows due to their appealing carry trade potential.