Brazil’s real dropped to a two-week low as the U.S. economy grew more than forecast, adding to speculation that the Federal Reserve will keep paring a stimulus program that has supported emerging markets.
The real declined 0.6 percent to 2.2457 per dollar in Sao Paulo, the weakest level on a closing basis since July 17. Swap rates, a gauge of expectations for interest-rate moves, rose nine basis points, or 0.09 percentage point, to 11.43 percent on the contract due in January 2017.
Most emerging-market currencies weakened against the dollar after a government report showed today that U.S. gross domestic product rose at a 4 percent annualized rate in the second quarter, exceeding the 3 percent median forecast of 80 economists surveyed by Bloomberg. The currency pared losses after the Federal Reserve said slack in the labor market persists even as the economy is picking up.
U.S. growth “is an important indicator used by the Fed to determine its next steps,” Cristiano Oliveira, the chief economist at Banco Fibra SA in Sao Paulo, said in a phone interview. “The real is declining with other emerging-market currencies as the dollar becomes more attractive to investors.”
The Fed tapered monthly bond buying to $25 billion in the sixth consecutive $10 billion cut, staying on pace to end the purchase program in October.
“A range of labor-market indicators suggests that there remains significant underutilization of labor resources,” the Fed said today in a statement. “The likelihood of inflation running persistently below 2 percent has diminished somewhat.”
The real pared its decline as the Fed’s statement encouraged some traders to speculate that the U.S. central bank will hold off on raising interest rates longer.
“There were concerns the Fed could indicate when in the future they could start raising rates, and they did not say that,” Joao Paulo da Gracia Correa, a currency trader at Correparti Corretora de Cambio in Curitiba, said by phone.
To support the real and limit import price increases, Brazil sold $198.8 million of currency swaps today and rolled over contracts worth $345.5 million. The central bank plans to keep offering $200 million in swaps each business day at least through the end of the year.
Aecio Neves, the closest challenger to Brazil’s President Dilma Rousseff ahead of October elections, said a weaker currency seems essential to help boost domestic output.
“A more devalued currency also seems absolutely essential to guarantee competitiveness for those who produce,” Neves said at the headquarters of Brazil’s industry confederation, known as CNI. “Brazil unfortunately is being held hostage to what we could call a risk of erring in currency populism.”
Speculation that Rousseff is losing popularity amid a stalled economy as the October election approaches has helped push the real up 5.2 percent this year.
Brazil’s central government posted in June the widest-ever primary budget deficit for the month, as growth slowed. Excluding interest payments as well as states, municipalities and government-run companies, the deficit was 1.9 billion reais, compared with a 10.5 billion reais a month earlier, the Treasury said in a report distributed in Brasilia today.
The Getulio Vargas Foundation said on its website today that Brazil’s wholesale, construction and consumer prices decreased 0.61 percent this month, more than the estimates of all except one of 30 economists surveyed by Bloomberg. The median forecast was for a 0.50 percent decline.
Policy makers voted unanimously on July 16 to hold the target lending rate at 11 percent for a second straight meeting after nine consecutive increases to curb inflation.
The central bank said today that the country posted a net outflow of $4.7 billion in the month through July 25, which would be the biggest this year.