Dollar stabilizes at 5,17 against the Brazilian Real after Iran and US halt hostilities

The dollar ended the day nearly flat against the Brazilian real, moving within very tight bands throughout the trading session. The US currency also showed limited fluctuations against emerging market currencies abroad. The spot dollar closed the day with a modest gain of 0,06 percent at 5,1725 reals. Evaluated since the beginning of the year, the dollar has depreciated by 5,76 percent against the Brazilian real. These data show that there is no major volatility in exchange rates across the markets in general and that investors are in a cautious wait-and-see position.

The main reason for this stagnation in the markets is shown as a new ceasefire agreement reached between Iran and the US. Following the hitting of a cargo ship by Iranian ammunition in the Strait of Hormuz on Thursday, claims emerged that there were mutual attacks between the two countries and that the temporary ceasefire had been violated. However, on Sunday, an American official announced that both countries agreed to suspend hostilities and return to negotiations. Following this development, the dollar continued its depreciation against strong currencies such as the euro and the pound. However, it followed a more volatile and unpredictable momentum against emerging market currencies such as the real.

Looking at the intraday data, the spot dollar saw its highest level of the day at 10.19 local time, rising 0,39 percent to 5,1897 reals. Then, at 12.30, it declined to 5,1557 reals with a 0,27 percent drop, recording the lowest level of the day. This fluctuation between the intraday highest and lowest levels of the dollar remained in a extremely narrow range of just 0,65 percent. On the other hand, July futures dollars, the most traded in Brazil, were traded at 5,1760 reals on the B3 exchange, down slightly by 0,06 percent. It is evaluated that this contraction in trading volume occurred in parallel with the gradual easing of geopolitical uncertainties in the markets.

In the afternoon part of the trading session, there was a remarkable drop in market liquidity. The biggest reason for this was the World Cup match played between Brazil and Japan, which Brazil won 2-1. During this match, which started at 14.00 local time, investors did not leave their screens, so exchange rates hardly moved and a kind of stagnation prevailed in the markets. The liquidity effect of such major sporting events on financial markets stands out as a factor that directly affects trading volumes, especially in countries passionately devoted to football like Brazil.

The Focus bulletin published by the Brazil Central Bank at the beginning of the day revealed that economists' year-end dollar estimates remained stable at 5,20 reals. In addition, it was reported that the Selic, the policy interest rate, is expected to remain at 14,00 percent for the end of 2026 and 12,00 percent for the end of 2027. Brazil's high interest rate policy, currently at 14,25 percent, creates a highly attractive difference compared to countries like the US and Japan. Although this interest rate difference has been considered an important factor encouraging foreign capital inflows to Brazil in recent months, it is stated that these dynamics could change with rising expectations of interest rate hikes in the US and the possibility of interest rate cuts in Brazil.