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Brazilian Real Faces Pressure Amid Global Tensions and Domestic Adjustments

Brazilian Real Faces Pressure Amid Global Tensions and Domestic Adjustments

The Brazilian real has slipped past 5.46 per USD, falling below the recent one-month high of 5.43 achieved on Stember 19. This decline is driven by the strengthening of the US dollar, which has benefitted from its status as a safe haven amid escalating conflicts in the Middle East. The potential for a broader confrontation involving Israel and Iran has overshadowed some positive signs from Brazil's domestic economic landscape.

On the domestic front, the Brazilian government has taken a more cautious stance by announcing a budget freeze amounting to R$3.67 billion from the Growth Acceleration Program, alongside R$974.8 million from committee amendments. This move, along with a revised estimate for the budget deficit in 2024, has alleviated some market apprehensions.

Additionally, Brazil's manufacturing PMI has shown promising growth, rising to 53.2 in Stember from 50.4 in August. This marks a significant recovery in factory activity, reflecting nine consecutive months of expansion, and supports a more hawkish stance from the central bank.

In trading, the USDBRL decreased by 0.0246 or 0.45%, settling at 5.4255 on October 1, down from 5.4501 in the previous session. Looking ahead, analysts project the Brazilian real could reach 5.55 by the end of this quarter, with expectations of 5.88 in twelve months.