Brazil Real Advances as Global Rally Offsets Political Turmoil

  • Tourism minister resigned on Thursday amid graft scandal
  • Temporary suspension of U.K. Brexit campaigns boosts assets

Brazil’s real rose along with global markets, offsetting domestic turmoil after a third minister resigned from the government of Acting President Michel Temer. 

The currency strengthened 1.5 percent to 3.4160 per dollar on Friday, following gains in emerging markets and commodities. The advance left the currency up 0.1 percent for the week. The real is the best performer among emerging-market currencies in 2016, climbing 16 percent.

The currency’s rally this year -- bolstered by speculation that Temer’s administration would bolster the economy and shore up the budget -- is overdone to some analysts, whose median projection is for the real to fall 7.3 percent by the end of September, the most bearish outlook for emerging markets. With the resignation of Tourism Minister Henrique Eduardo Alves on Thursday, just seven weeks before the start of the Olympics in Rio de Janeiro, Temer has now lost three ministers in his month-old government.

The departures “don’t significantly hurt Temer’s administration," said Solange Srour, the chief economist at ARX Investimentos in Rio de Janeiro. "If the global scenario continues to favor emerging markets, the real will continue to strengthen."

Emerging market assets rebounded from weekly losses as campaigning in Britain’s referendum on European Union membership was suspended for a second day and odds showed a reduced chance the U.K. will leave the EU.

Brazilian swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, rose 0.1 percentage point to 12.78 percent.

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