Brazilian Real Caps Weekly Decline Amid Outlook for Fed Policy

Brazil’s real fell for a second week on concern the Federal Reserve will begin raising interest rates sooner than expected as the U.S. labor market recovers, reducing demand for higher-yielding assets.

The currency rose 0.1 percent to 2.5885 per U.S. dollar at the close of trading in Sao Paulo, paring a weekly slump to 0.9 percent. Swap rates, a gauge of expectations for changes in Brazil’s borrowing costs, climbed one basis point, or 0.01 percentage point, to 12.41 percent on the contract maturing in January 2016. They’re down five basis points since Nov. 28.

Most emerging-market currencies fell as the U.S. payrolls report showed employers added 321,000 jobs in November, more than the most optimistic forecast among economists surveyed by Bloomberg. Brazilian central bank President Alexandre Tombini said in Santiago, Chile, that a selloff of emerging-market currencies may not be in the best interests of developed nations.

“Markets are pricing in a possible rate increase sooner rather than later since labor market data in the U.S. came in better than the best of expectations,” Camila Abdelmalack, an economist at brokerage CM Capital in Sao Paulo, said in a telephone interview. “This makes riskier assets such as Brazil’s less attractive.”

The U.S. jobless rate held at a six-year low of 5.8 percent last month as the Fed considered when to raise borrowing costs for the first time since 2006.

In Brazil, a report indicated today that consumer prices rose 6.56 percent in the 12 months through November, slower than the median forecast from economists surveyed by Bloomberg, which called for a second straight increase of 6.59 percent.

Policy Statement

Further advances in the target lending rate will be conducted with “parsimony,” the central bank said in its statement Dec. 3 as it raised borrowing costs by 50 basis points to 11.75 percent.

While defending her government’s performance in lowering unemployment, President Dilma Rousseff indicated this week that her economic team, including incoming Finance Minister Joaquim Levy, will introduce measures gradually to bolster growth.

To support the currency, Brazil sold the equivalent of $197.6 million of foreign-exchange swaps today as part of an intervention program begun last year and rolled over contracts worth $489.4 million.

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