Brazil's Real Drops Amid Renewed Speculation of Levy Departure

  • Valor newspaper reported Levy could leave in early 2016
  • Real is worst performer among 31 major currencies this year

Brazil’s real declined to the lowest level this month amid renewed speculation Finance Minister Joaquim Levy may leave his post, while increased bets that the Federal Reserve will raise rates in December is hurting demand for emerging-market assets.

The real dropped 0.5 percent to 3.8181 percent at 9:38 a.m. in Sao Paulo, the weakest since Oct. 30 on a closing basis. Swap rates on the contract maturing in January 2017, a gauge of expectations on Brazil’s interest-rate moves, advanced 0.07 percentage point to 15.52 percent.

Valor Economico newspaper said Tuesday the government and Workers’ Party may replace Levy in January, without saying how it got the information. The real has tumbled 30 percent this year, the most among major currencies, as Levy’s attempts to shore up government finances have faced opposition by member’s of President Dilma Rousseff’s party and by lawmakers in Congress.

"A departure by Levy could lead to more downgrades for Brazil," said Bernd Berg, director of emerging market strategy at Societe Generale in London. "That would put pressure on the real in the short-term."

Brazil’s sovereign rating was cut to junk by Standard & Poor’s in September. Fitch Ratings and Moody’s Investors Service rate the country the lowest level of investment grade. The rating companies have cited concern over slow growth and the fiscal scenario.

Newspaper Folha de S. Paulo reported Tuesday that Rousseff is seen keeping Levy in his post despite pressures from her own party and from former President Luiz Inacio Lula da Silva.

The real also weakened after U.S. employment in October surged by the most this year. Accelerating wage growth and a drop in the jobless rate to 5 percent are increasing the chances the Fed will lift interest rates in December, futures trading shows.

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