Brazilian Real Falls as Yellen’s Rate Outlook Spurs Dollar Rally

Brazil’s real fell after a testimony from Federal Reserve Chair Janet Yellen added to concern the U.S. central bank may raise borrowing costs sooner than expected.

The real declined 0.3 percent to 2.2191 per U.S. dollar at the close of trade in Sao Paulo. Swap rates, a gauge of expectations for interest-rate moves, increased one basis point, or 0.01 percentage point, to 11.41 percent on the contract maturing in January 2017.

The dollar rose today against most of its counterparts as Yellen told lawmakers that increases in the federal funds target rate will probably occur “sooner and be more rapid than currently envisioned” if the U.S. labor market keeps improving more quickly than anticipated.

“The tone was less dovish than the market was expecting, and that is affecting currencies worldwide, including the real,” Juliano Ferreira, a strategy analyst at Icap do Brasil in Sao Paulo, said in a telephone interview.

Speculation that President Dilma Rousseff is losing popularity has helped push the real up 6.4 percent this year, the most among 24 emerging-market currencies tracked by Bloomberg. Economic growth during her term is the slowest of any Brazilian president in two decades.

Analysts reduced their growth forecast for this year to 1.05 percent from 1.07 percent a week earlier, according to the median of about 100 estimates compiled for a central bank survey published yesterday.

Presidential Poll

Sensus Data World Pesquisa e Consultoria is finishing a presidential election poll, according to a statement published on the website of Brazil’s Superior Electoral Court. Results may be released today.

To support the real and limit import price increases, Brazil sold $198.5 million of currency swaps today and rolled over contracts worth $346.4 million. The central bank plans to keep offering $200 million in swaps each business day at least through the end of the year.

Leaders of Brazil, Russia, India, China and South Africa said at a meeting in Fortaleza, Brazil, that they formalized the creation of a $100 billion currency exchange reserve, which member states can tap during balance-of-payment crises. They also reached an accord to push ahead with a $50 billion development bank by granting China its headquarters and India its first rotating presidency, according to a summit statement.

Both initiatives are designed to provide an alternative to financing from the International Monetary Fund and the World Bank, where BRICS countries have been seeking more clout.

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