Brazil’s Real Weakens as Brexit Risk Outweighs Economic Outlook

Measuring the Global Market Risks of a Brexit
  • Currency declines for third consecutive day amid global rout
  • Emerging-market currencies fall as traders seek safe haven

Brazil’s real weakened for the third consecutive day as growing concerns over the prospect of the U.K. exiting the European Union rattled global markets, overshadowing forecasts for faster Brazilian economic growth.

Investors sought safe-haven assets including yen and gold as anxiety over the prospect of the U.K. leaving the European Union sparked a selloff in riskier markets. The global pessimism weighed on the real, which reached the highest level in 11 months on June 8 amid speculation that new central bank president Ilan Goldfajn will refrain from intervening in the market. Goldfajn said at his swearing-in ceremony Monday that the central bank can reduce its currency exposure when conditions allow, without giving further details. He also nominated four new central bank directors.

The currency dropped 1.8 percent to 3.4826 per dollar on Monday, extending a three-day slide to 3.5 percent. The MSCI World Index of stocks fell 1.2 percent, while gold rose to a one-month high.

"There is a strong risk aversion sentiment in external markets as investors get more worried about the possibility of the U.K. exiting the European Union," says Jefferson Rugik, foreign-exchange manager at Correparti Corretora de Cambio. "As we don’t have news on the domestic scenario, the real is following external sentiment."

Brazilian economists again raised their gross domestic product forecast for next year, to 1 percent growth, from 0.85 percent the prior week and 0.5 percent a month earlier, according to economists surveyed in the week ending June 10. They also revised their 2016 GDP estimate to a 3.6 percent contraction from 3.71 percent the prior week.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, fell 0.02 percentage point top 12.66 percent.

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