According to data from Einar Rivero, co-founder of Elos Ayta Consultoria, the depreciation of the Brazilian real was highlighted in a CNN study that evaluated 23 global currencies.
As of Wednesday (19th), the real led the losses in the index; however, the U.S. dollar closed the week at 5.441 Brazilian reais, representing a 0.38% drop for the day, offering some slight relief. Nevertheless, the dollar recorded a 1.12% increase for the week. Over the course of the year, the dollar has risen by an impressive 12.40% against the real, making it one of the strongest currencies worldwide.

At the end of last year, the Brazilian real experienced a robust positive phase, driven by factors such as favorable international prospects. Alexandre Cabral, a finance professor at Saint Paul Escola de Negócios, highlights that this optimism attracted foreign investors and led to a drop in the dollar exchange rate, which fell to around 4.90 reais in December.
External capital flowed into Brazil in the expectation that U.S. interest rates would be lowered in March, which traditionally weakens the dollar globally. “When U.S. interest rates fall, the currency spreads worldwide,” explains Cabral.
However, Cristiane Quartaroli, foreign exchange strategist and chief economist at Ouribank, reminds us that this movement was an anticipation of an event that ultimately did not occur due to the postponement of rate cuts by the Federal Reserve (Fed), the central bank of the United States. This delay also benefited emerging market currencies.
This period highlights how sensitive financial markets are to expectations regarding global monetary policy and how interest rate adjustments can significantly impact currencies worldwide.
At the beginning of 2024, expectations of rate cuts in the U.S. were disappointed due to the resilience of the American economy, which showed a robust labor market, sustainable economic activities, and concerns about rising inflation. Geopolitical factors, such as the conflicts between Iran and Israel in April, also influenced the Federal Reserve’s decision to postpone the start of the rate-cutting cycle, as analyzed by Berenice Damke, a finance professor at Insper and financial specialist at Damke Consultoria.
The depreciation of the real against the dollar was not only the result of external disappointments but also of significant internal factors. Damke points to growing concerns about fiscal risk, which were not as relevant until last year.
In 2023, the strength of the real reflected relief regarding fiscal concerns, driven by the positive perception of market improvement throughout the year, with the approval of the fiscal framework and the economic team’s efforts to increase revenues to meet the goal of a zero primary fiscal deficit in 2024. However, starting in April of this year, the scenario abruptly changed, marking a new downward trend for the Brazilian currency.
The economic rollercoaster continues with significant twists, as the government reviews fiscal targets for 2025, shifting from a primary surplus to a zero deficit. This change has raised growing concerns about the government’s fiscal responsibility and suggests a possible increase in spending by a government struggling to boost its revenues, as Damke notes.
Recently, the government attempted to maintain high revenues by introducing a provisional measure aimed at closing legislative gaps regarding non-refundable PIS/Cofins credit and the limited PIS/Cofins compensation. However, the measure faced strong criticism from parliamentarians and economic sectors and was withdrawn the following week after its introduction.
As the U.S. maintains high interest rates for a longer period, the global situation tends to be unfavorable for the rest of the world. Evandro Buccini, partner and director of credit and multi-assets at Rio Bravo Investimentos, emphasizes that Brazil, despite a difficult external environment for all, faces additional challenges due to internal issues.
“Fiscal targets are deteriorating significantly over the next few years. This is a problem that involves both political and economic aspects, with Lula’s criticism of the central bank,” Buccini highlights.
These developments illustrate the complexity and multiple variables affecting the Brazilian economy, with impacts both domestically and internationally shaping the current economic environment.
Cristiane Quartaroli underscores that institutional risk in Brazil is poorly received by foreign investors, leading them to avoid the market due to the uncertainties this situation causes.
“The increase in institutional and fiscal risk in the country raises our risk premium, which puts pressure on our exchange rate, as we have recently seen, and this is what causes the discrepancy between the real and other emerging market currencies,” stresses the foreign exchange strategist and chief economist at Ouribank.
The depreciation of the real against the dollar, observed since the beginning of the year, significantly intensified in April.
According to forecasts from the Prisma Fiscal, a market survey by the Ministry of Finance, Brazil’s public debt is expected to stabilize only between 2032 and 2033, at around 90% of GDP.
“Expectations are very high that people believe in possible positive changes in economic policy, given everything that has happened. Therefore, the government must really change its direction to convince the markets,” assesses Evandro Buccini.
Some argue that a change in economic direction may already be underway. “We are confident that the government will take measures that, although not ideal, will be close to what is needed to improve spending control and support fiscal dynamics in 2025 and 2026,” says Luciano Costa, chief economist at Monte Bravo.
In addition to internal considerations, the external environment for Brazil could also become more favorable, as analysts expect at least one interest rate cut in the U.S. later this year, which could ease some of the pressure on Brazilian indicators.
“Of course, this depends heavily on fiscal issues, but in macroeconomic terms and considering the global environment, we should see a lower dollar by the end of this year,” suggests the chief economist at Ouribank.
According to the latest Boletim Focus from the central bank, the market forecasts that the dollar will be traded at 5.13 reais by the end of 2024.