Brazil Real Slump Deepens as Central Bank Steps Up Intervention

  • Central bank announced another sale of reverse swap contracts
  • Emerging-market currencies declined amid risk aversion

Brazil’s real dropped for a fourth straight session, its longest losing streak since February, as the central bank once again intervened to weaken the currency.

The real fell 0.8 percent to 3.33 per dollar on Wednesday after the monetary authority placed all 10,000 reverse swaps it offered, a move equivalent to buying $500 million in the futures market. The central bank has acted to weaken the real every day this week.

"The central bank is trying to create a psychological floor for the market, with the real trading around 3.3 to 3.2 per dollar," said Luis Gustavo Pereira, an strategist at Guide Investimentos in Sao Paulo. "The dollar was practically in freefall, and with these interventions the central bank is minimizing volatility and softening the fall."

The central bank has sold $44.8 billion of the contracts in the past 15 weeks to limit gains in the real, the world’s best performing currency this year. It has jumped 19 percent since the end of December amid speculation that a new administration would pave the way for measures to revive the economy and curb a ballooning budget deficit. Acting President Michel Temer assumed the presidency on May 12 after a Senate vote forced Dilma Rousseff to temporarily step down while she faces an impeachment trial.

The Brazilian currency also dropped amid reduced demand for riskier assets after Federal Reserve Bank of New York President William Dudley said the significance of the U.K.’s vote to leave the European Union could increase as market turmoil spreads. A gauge of emerging-market currencies dropped for the third consecutive day.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, rose 0.06 percentage point to 12.80 percent.

Before it's here, it's on the Bloomberg Terminal.