Brazil’s real weakened against the dollar Monday as concern about the debt crisis in Europe continued to spur investors to buy dollars.
The real weakened to BRL1.8653, from BRL1.8534 at the close Friday, according to Tullett Prebon via FactSet.
“Investors are still in defensive positions,” said Miriam Tavares, foreign-exchange director at the AGK Corretora trading house in Sao Paulo. “I think the rest of this week it will continue in this tone.”
European Central Bank President Mario Draghi said the region’s economic outlook was subject to “high uncertainty” and that substantial downside risks remained. The comments heightened concern after the actions of two ratings companies last Friday.
Moody’s Investors Service Friday downgraded the Kingdom of Belgium’s government-bond rating two notches to Aa3 from Aa1 and kept the country on negative outlook.
Ratings firm Fitch placed Belgium, Spain, Slovenia, Italy, Ireland and Cyprus on negative watch, while promising to complete its review by the end of January. Fitch also affirmed France’s triple-A rating but placed the country on negative review.
Pressure on the real was slightly lessened by recent positive economic indicators in the U.S. and after the Brazilian central bank’s actions last Thursday, when the bank offered to sell U.S. dollars at an auction, for repurchase in January and February, Tavares said.
“The central bank has signaled that it won’t let the exchange rate be pressured by speculation,” she explained.
It was the first move by the central bank in the market for several weeks and was apparently aimed at curbing an excessive weakening of the Brazilian real and helping meet market demand for dollar credit lines, which have dried up as the European financial crisis has unfolded.
EasyForexNews Research Team