Brazil’s Real Falls Most in Emerging Markets on Fed Speculation

Brazil’s real dropped the most in emerging markets as accelerating U.S. inflation added to speculation the Federal Reserve will curtail a stimulus program that has supported the South American nation’s assets.

The real fell 1.2 percent to 2.2620 per U.S. dollar in the biggest drop among 24 developing-nation currencies. Trading ended at an earlier time today as Brazil prepared to play Mexico in the World Cup. Swap rates on contracts maturing in January 2017 climbed six basis points, or 0.06 percentage point, to 11.57 percent.

“CPI in the U.S. came above expectation, and that shows the economy there is recovering,” Reginaldo Galhardo, foreign-exchange manager at Treviso Corretora de Cambio in Sao Paulo, said in a telephone interview. “This is a shorter day for trading in Brazil, with lower liquidity.”

Related story: Brazil ETFs - The World Cup Bounce and Beyond

A U.S. Labor Department report before tomorrow’s Fed statement indicated that consumer prices increased 0.4 percent in May from a month earlier, the biggest advance since February 2013. In Brazil, slowing economic growth spurred the central bank to hold its target lending rate at 11 percent on May 28 after nine consecutive increases to curb inflation.

Finance Minister Guido Mantega told reporters today in Brasilia that the government will announce tomorrow measures to aid businesses. He declined to provide more information.

Economists reduced their 2014 annual growth forecast to 1.24 percent from 1.44 percent, according to the median of about 100 estimates in a central bank survey published yesterday.

To support the currency and limit import price increases, Brazil sold today $198.5 million of foreign-exchange swaps and rolled over contracts worth $494 million. The central bank announced June 6 that it was extending its intervention, which had been scheduled to end this month.

To contact the reporter on this story: Filipe Pacheco in Sao Paulo at fpacheco4@bloomberg.net

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net Dennis Fitzgerald, Rita Nazareth

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