Brazilian Real Declines as Fed Speakers Seen Bolstering Dollar

  • Lawmakers approved legislation that may boost fiscal revenue
  • Real is world's worst-performing major currency this year

Brazil’s real declined as comments from Federal Reserve officials reinforced the view that U.S. interest rates will rise this year, which would make higher-yielding currencies less attractive to investors.

The real briefly extended its losses against the dollar after normally dovish New York Fed President William Dudley said the central bank may need to begin tightening. Fed President James Bullard of St. Louis earlier urged raising target rates, while Chicago Fed leader Charles Evans stressed any increases should be “gradual.” Speculation of a December U.S. rate increase offset a government victory in Brazil’s congress, where lawmakers approved a measure to increase revenue.

"Today’s speeches might increase expectations that interest rates in the U.S. could rise this year," said Guilherme Esquelbek, a currency trader at Correparti Corretora de Cambio in Curitiba, Brazil. That counterbalances "the victory for the government in approving the repatriation bill, which could give some support for the currency."

The real weakened 0.3 percent to 3.7711 per U.S. dollar Thursday, extending this year’s slide to 30 percen. A gauge of emerging-market currencies fell 0.4 percent.

After the market close on Wednesday, lawmakers approved legislation that provides incentives for Brazilians to bring money back into the country. The measure is part of Finance Minister Joaquim Levy’s program to narrow the budget deficit. The legislation, which passed in the lower house by 230 votes to 213, still needs Senate approval.

The win comes as President Dilma Rousseff tries to improve ties with lawmakers and fend off calls for her impeachment.

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 15.54 percent.

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