Brazil Real Rallies to Three-Month High on Surprise Fed Decision

Brazil’s real rose to a three-month high after the Federal Reserve unexpectedly refrained from curtailing monetary stimulus, bolstering the Latin American nation’s efforts to strengthen the currency.

The real climbed 3.2 percent to 2.1860 per dollar, the strongest closing level since June 18. The currency was the best performer among 16 major dollar counterparts tracked by Bloomberg. Swap rates on the January 2015 contract fell 25 basis points, or 0.25 percentage point, to 10.11 percent. The Ibovespa stock benchmark gained 2.6 percent, the best performance among 94 equity gauges tracked by Bloomberg.

Brazil’s central bank President Alexandre Tombini said at a Senate hearing in Brasilia today that the intervention in the currency market has created stability. The Fed refrained from reducing the $85 billion pace of monthly bond buying, saying it needs to see more evidence of improvement in the economy.

“The market had prepared for a reduction in stimulus that didn’t happen,” Luciano Rostagno, the chief strategist at Banco Mizuho do Brasil SA, said in a telephone interview from Sao Paulo. “The market is now correcting the excesses and will follow American data closely until the next Fed meeting.”

The real has advanced 11 percent since Aug. 22, when Brazil’s central bank announced a $60 billion intervention program of currency swaps and foreign-exchange credit lines through December. That is the biggest gain among all of the currencies tracked by Bloomberg. To support the currency today, the bank sold $497 million of foreign-exchange swaps and rolled over $2.7 billion of contracts.

Fed Outlook

Economists surveyed by Bloomberg had forecast that the Fed would reduce monthly Treasury purchases by $5 billion, to $40 billion, while maintaining its buying of mortgage-backed securities at $40 billion.

A jump in U.S. Treasury yields since May, when Fed Chairman Ben S. Bernanke first outlined a possible timetable for a reduction in asset purchases, made emerging-market assets less attractive to investors.

“There was an expectation that the Fed would reduce its stimulus,” Hideaki Iha, a currency trader at Fair Corretora de Cambio e Valores, said in a telephone interview from Sao Paulo.

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