Brazil Real Falls Most Among Peers on Intervention, Fed Wagers

  • Central bank sells $1 billion in contracts to curb rally
  • Finance, Planning minister said to disagree on fiscal target

Brazil’s real led losses among its most-traded counterparts as speculation U.S. interest rates will rise sapped demand for riskier emerging-market assets and the central bank intervened to weaken the currency.

The real fell 2.1 percent to 3.5654 per dollar on Wednesday. It extended losses after minutes from the last meeting of the Federal Open Market Committee showed most policy makers felt that an interest-rate increase would be appropriate in June if the U.S. economy continues to improve.

The real snapped a two-day rally as the monetary authority sold 20,000 reverse swaps, a move equivalent to buying $1 billion in the futures market. Emerging-market currencies fell worldwide as investors priced in an increased probability of higher U.S. interest rates. In Brazil, the planning and finance ministers are said to disagree on the new fiscal target, according to Folha de S. Paulo.

"The FOMC and the central bank intervention are driving the real down," said Camila Abdelmalack, the chief economist at brokerage CM Capital Markets in Sao Paulo. "If the economic team keeps disagreeing on fiscal measures, investors’ mood will likely sour too."

The cost of hedging Brazil’s sovereign debt against losses using five-year credit-default swaps rose 10 basis points to 342.70 basis points.

The real has climbed the most among major currencies worldwide this year on bets that a new government would pull Latin America’s largest economy out of its worst recession in a century and revive the nation’s finances.

Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, rose 0.035 percentage point to 13.685 percent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE