Brazil Real Heads for Biggest Gain in Two Weeks on Fed Outlook

The real headed for the biggest gain in two weeks as the U.S. dollar weakened amid speculation the Federal Reserve may announce more stimulus measures to boost the world’s largest economy.

The currency gained 1.4 percent to 2.031 per U.S. dollar at
2:50 p.m. in Sao Paulo, trimming its decline this year to 8.1
percent. The yield on the Brazilian interest-rate futures
contract due in January 2014 rose one basis point, or 0.01
percentage point, to 8.06 percent.

“The real is just trading in line with other currencies,
which is a rarity these days,” Kenneth Lam, a Latin America
currency and local rates strategist at Citigroup Inc., said by
phone from New York. Speculation that Brazil’s central bank will
revive swap sales to limit losses in the currency faded “now
that things are looking brighter, and people are speculating on
more quantitative easing,” Lam said.

U.S. Federal Reserve policy makers begin a two-day meeting
today amid speculation they will take further steps to boost
economic growth. Group of 20 leaders convening in Mexico focused
their response to Europe’s financial crisis on stabilizing banks
as the International Monetary Fund raised its lending capacity
to shield the rest of the world economy.

Yields on most interest-rate futures contracts maturing by
January 2014 rose or were unchanged as wagers central banks
around the world will take further steps to boost growth
overshadowed data showing inflation rose at a slower pace in the
20 days beginning May 21.

Inflation Data

“Market participants know that the Brazilian central bank
is still going to be dovish because of what’s happening
domestically,” Lam said. “But at least the external factor is
not as acute as yesterday.”

The second preview of the Rio de Janeiro-based Getulio
Vargas Foundation’s IGP-M index, which covers producer and
consumer prices and construction costs in the 20 days beginning
May 21, increased 0.63 percent. The index advanced 0.68 percent
in June’s first preview and climbed 1 percent in May’s second
preview.

“The IGP-M report offset the positive movement in markets
abroad,” said Darwin Dib, chief economist at CM Capital Markets
Asset Management, in a phone interview from Sao Paulo.

A European Union official said a politically acceptable
path for renegotiating Greece’s bailout will be sought. The
official spoke to reporters on condition of anonymity in
Brussels today.

Antonis Samaras, whose New Democracy party came in first in
Greece’s June 17 election, told reporters yesterday that he will
hold a second day of talks today after “constructive” meetings
with two party leaders.

The central bank has held currency-swap auctions, which are
equivalent to selling dollars in the futures market, since mid-
May to support the real. The swaps are a reversal of the bank’s
dollar purchases, which reached $7.2 billion in April, the most
in 13 months.

To contact the reporters on this story:
Blake Schmidt in Sao Paulo at
bschmidt16@bloomberg.net;
Gabrielle Coppola in Sao Paulo at
gcoppola@bloomberg.net

To contact the editor responsible for this story:
David Papadopoulos at
papadopoulos@bloomberg.net

Article source: http://www.businessweek.com/news/2012-06-19/brazil-real-gains-on-speculation-more-currency-swaps-may-be-sold

Posted by braziltribune on Jun 19 2012 Filed under Front Page. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry