USD / BRL could continue to fluctuate as Brazilian central bank tightens 100 basis points
Brazilian Central Bank, Brazilian Real, US Dollar, USD / BRL – Talking Points
- Central Bank of Brazil raises rates by 100 basis points, Selic rate now 6.25%
- Brazil continues to fight high inflation, with annual CPI approaching 10%
- USD / BRL May Look To 50 Day Moving Average For Support After Rate Hike
The Brazilian Central Bank on Wednesday raised the Selic benchmark rate by 100 basis points (bps) in an attempt to curb soaring inflation. The 100bp hike was in line with estimates and follows a 100bp hike at the previous central bank meeting. Analysts had forecast notable hikes in the benchmark rate, with some going so far as to predict a rise of 150 basis points. Central bank officials also revealed that they expect a further 100 basis point hike at the next policy meeting in October.
Courtesy of DailyFX Economic Calendar
Brazil has notably struggled with inflation over the past 12 months, forcing the country’s central bank to adopt a more hawkish policy. Unwanted increases in consumer prices have forced the Central Bank of Brazil to dramatically increase its effects in its last two policy meetings. A severe drought has accelerated the upward pressure on energy prices, exacerbating the pain felt by consumers. The Brazilian central bank’s inflation target remains just below 4%, but the annual CPI continues to rise towards 10%.
USD / BRL daily chart
Chart created with TradingView
USD / BRL could continue to turn after Wednesday’s FOMC meeting, at which Federal Reserve Chairman Jerome Powell said a decrease in asset purchases is “imminent”. As the Fed moves towards tightening and the BCB is well and truly there, the USD / BRL could be subject to further volatility in the coming weeks. The dollar’s strength in September saw the USD / BRL retreat to 5.30, but the continued hawkish policy of the Central Bank of Brazil could see the cross retest the 50-day moving average or trendline support below. below.
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— Written by Brendan Fagan, intern
Contact Brendan, use the comments section below or @BrendanFaganFX on Twitter