Brazil Real Rises as Signs of Global Recovery Buoy Risk Demand

Brazil’s real climbed from a one-month low, rising along with other emerging-market currencies, as evidence of a global economic recovery encouraged demand for higher-yielding assets.

The real gained 0.7 percent to 2.2294 per U.S. dollar after falling 1 percent yesterday to the weakest level since April 3. Swap rates on contracts maturing in January 2016 decreased six basis points, or 0.06 percentage point, to 11.85 percent.

“The real should benefit from the growing appetite for risk seen in foreign markets,” Reginaldo Galhardo, foreign-exchange manager at Treviso Corretora de Cambio in Sao Paulo, said in a telephone interview.

The dollar fell against most emerging-market currencies today as a drop in Spain’s jobless claims and service industry growth in the U.K., Germany, Italy and Ireland reduced refuge demand. Brazil’s currency has rallied almost 6 percent this year, partly on speculation that a change in the administration governing Brazil will support the economy.

The probability that President Dilma Rousseff will win the October election was cut to 55 percent from 60 percent as high inflation reduced the government’s popularity, Rafael Cortez, a political analyst at Tendencias Consultoria Integrada in Sao Paulo, said in a telephone interview.

To contain inflation, policy makers have raised the target lending rate from a record low 7.25 percent in April 2013 to a two-year high of 11 percent. Brazil sold today $198.5 million of swaps under a program announced in December to support the currency and limit import price increases. It also extended the maturity on contracts worth $247.7 million.

Economists maintained their forecast that the real will decline to 2.45 per dollar at the end of 2014, according to the median of about 100 estimates in a central bank survey published yesterday. They also stuck with their projection that consumer prices will increase 6.5 percent this year, the upper limit of the official target.

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