Brazil Real Falls as Overseas Turmoil Saps Emerging-Market Bid

Brazil’s real dropped for a third straight day as turmoil in the Middle East and Ukraine sank demand for emerging-marking assets.

The real declined 0.4 percent to 2.2298 per U.S. dollar in Sao Paulo, extending its weekly drop to 0.2 percent. Swap rates, a gauge of expectations for interest-rate moves, fell six basis points, or 0.06 percentage point, to 11.03 percent on the contract maturing in January 2016. They were up nine basis points since July 18.

The currency weakened today as Russia was embroiled in a crisis with the U.S. and its allies after the downing of a Malaysia Airlines jetliner in Ukraine while the conflict in the Gaza Strip between Israel and Hamas intensified.

“Geopolitical matters have negatively affected the sentiment of investors all week,” Luciano Rostagno, the chief strategist at Banco Mizuho do Brasil SA in Sao Paulo, said in a telephone interview. “The real is reflecting that.”

Speculation that President Dilma Rousseff is losing popularity as the October election approaches amid the slowest economic growth in two decades has helped push the real up 5.9 percent this year, the most among 24 emerging-market currencies tracked by Bloomberg.

A central bank survey published July 21 showed analysts cut their median growth estimate for an eighth consecutive week, forecasting a 0.97 percent expansion of gross domestic product this year following a 2.5 percent increase in 2013.

Lender Funds

The central bank announced today it is making available an estimated 45 billion reais ($20 billion) to lenders with measures including reduced reserve requirements as it looks to boost economic activity.

Policy makers projected in minutes of its July 15-16 meeting published yesterday that inflation will be “resistant in upcoming quarters” and that monetary policy needs to remain “especially vigilant.”

To support the real and limit import price increases, Brazil sold $198.7 million of currency swaps today and rolled over contracts worth $345.4 million. The central bank plans to keep offering $200 million in swaps each business day at least through the end of the year.

Brazil reported today that the deficit in the current account, measuring trade in goods and services, narrowed last month to $3.3 billion, the smallest since September.

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