Brazil Real Rises to One-Year High as Yields Lure Investors

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  • Bank of England cut rates, expanded quantitative easing
  • Brazilian real offers best return for carry investors

The real rose to a one-year high on speculation that a wave of monetary stimulus in developed markets will make Brazil’s higher interest rates more attractive to foreign investors.

The currency strengthened 1.4 percent to 3.1934 per dollar on Thursday, reaching the highest level since July 21 last year. The real extended its gain this year to 24 percent, the most among about 149 currencies tracked globally by Bloomberg.

Emerging-market currencies rallied after the Bank of England cut its key rate for the first time in more than seven years, boosting speculation that policy makers around the world will continue to ease monetary conditions and the U.S. Federal Reserve will delay rate increases. After keeping its Selic rate at 14.25 percent at a meeting last month, Brazil’s central bank said there is no room for monetary flexibility, citing the need for further fiscal adjustment and an unfavorable climate that is harming global food production.

"The real is gaining momentum as most central banks across the globe continue to ease further their monetary policy," said Arnaud Masset, an analyst at Swissquote Bank SA in Gland, Switzerland. "Investors are desperately chasing higher returns, while volatility in the FX market is at multi-month low, which creates an enabling environment for carry trade and definitely drove the real higher over the last few months."

Buying the real with borrowed dollars in a carry trade has returned 33 percent this year, the most among 42 currencies tracked by Bloomberg.

Bank of England officials voted to reduce the benchmark rate to a record-low 0.25 percent and also to expand quantitative easing, as they slashed economic growth forecasts by the most ever.

Brazilian swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, dropped 0.05 percentage point to 12.78 percent.