Brazil’s real advanced the most in nine months as European leaders expanded steps to stem the debt crisis and the central bank auctioned currency swaps for the third time this week to boost the exchange rate.
Interest-rate futures yields rose for the first time in seven days after euro-area leaders agreed to relax conditions on emergency loans for Spanish banks. Brazil’s central bank auctioned 60,000 currency swaps worth $3 billion today.
“It’s starting to break 2 at this point and it might do it,” Ilan Solot, a London-based strategist at Brown Brothers Harriman & Co., said in a telephone interview. “The swap might have been the biggest factor on the margin that led to this.”
The real appreciated 3.4 percent to 2.0094 per U.S. dollar for the biggest gain since Sept. 23. The currency pared its quarterly loss to 9.1 percent. Yields on the interest-rate futures contract due in January 2014 rose three basis points, or 0.03 percentage point, to 7.90 percent, after earlier climbing to 7.95 percent.
The central bank auctioned 60,000 currency swap contracts yesterday worth $949.3 million, according to data on the bank’s website. The bank auctioned another 60,000 swap contracts June 27, rolling over $3 billion worth of contracts expiring July 2.
Stocks rose and the euro strengthened the most this year after European leaders reached an accord that eased concern banks will fail. After talks ended at 4:30 a.m. in Brussels today, leaders of the 17 euro countries dropped requirements that taxpayers get preferred creditor status on aid to Spain’s banks and opened the way to recapitalize lenders directly.
“This European plan will have repercussions in the currency market,” Jose Carlos Amado, a currency trader at Renascenca DTVM Ltda., said by phone from Sao Paulo.
The real also gained after policy makers unwound credit controls, according to Amado. Exporters may now raise capital from foreign banks and companies as long as the funds are used to export goods within 360 days, according to a central bank statement yesterday.
“This will allow exporters to sell more and increase the dollar supply,” Nathan Blanche, a partner at Tendencias Consultoria Integrada, an economics consultant in Sao Paulo, said yesterday.
Brazil’s real has lost 7.1 percent this year as the European debt crisis sapped demand for the country’s assets and compounded government efforts to weaken the currency and boost exports.
The real’s rally today, the best among 16 major currencies tracked by Bloomberg, was heightened by a lack of trading volume, Solot said.
“There’s been a bit of disenchantment” with the government interventions in the currency market, he said. “A lot of people are not really interested in playing Brazil anymore.”
Futures yields also rose on speculation stepped up efforts to contain Europe’s debt crisis will boost global growth, limiting the central bank’s ability to lower interest rates, Italo Lombardi, Latin America economist at Standard Chartered Bank, said by phone from New York.
Brazil has cut the target interest rate by 4 percentage points since August, more than any other member of the Group of 20 nations. Traders are betting that the benchmark may be reduced from 8.5 percent to about 7.50 percent by the end of this year as the government tries to revive economic growth, interest-rate futures show.
“The market is positive because of this surprise coming out of the Europe meeting,” Lombardi said. “It goes against the idea of a more serious event happening in Europe, something that would bring an abrupt slowdown in the global economy.”
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