Brazil Real Leads Global Drops as Greece Damps Emerging Markets

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Brazil’s real fell the most among global currencies as concern European finance ministers will struggle to agree on aid for Greece damped demand for emerging-market assets.

The currency slumped 2.9 percent to 3.0622 per U.S. dollar in Sao Paulo, the biggest drop among 31 major currencies tracked by Bloomberg.

“Uncertainties on the Greek situation prevent investors from adding more risk to their short-term positions, which is negative for emerging-market assets such as the real,” Joao Paulo de Gracia Correa, a trader at Correparti Corretora de Cambio in Curitiba, Brazil, said by telephone.

The real fell as Greece faced a Tuesday deadline to pay 750 million euros ($836 million) to the International Monetary Fund. Eased fiscal concern in Brazil and the prospect of further increases in borrowing costs helped the local currency climb 1.3 percent last week.

Swap rates on the contract maturing in January 2017, a gauge of expectations for changes in Brazil’s borrowing costs, increased 0.03 percentage point to 13.55 percent Monday.

Traders project that policy makers will increase the benchmark lending rate by a half-percentage point at a fifth straight meeting in June after the central bank said in the minutes from its April decision that the balance of inflation risks has become unfavorable.

Finance Minister Joaquim Levy’s effort to shore up public accounts and preserve the nation’s investment-grade status got a boost on Wednesday when the lower house approved reductions in labor benefits and rejected amendments that threatened to weaken the legislation.

The central bank extended the maturity of 8,100 foreign-exchange swap contracts worth $392.9 million Monday. Sale of the swaps supporting the real was halted in March.

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