US Dollar Declines Against Brazilian Real Following Fed Decision and Unemployment Data

The US dollar declined against the Brazilian real on Thursday following the decision by the US Federal Reserve to maintain interest rates and reports of falling unemployment in Brazil. The Federal Reserve kept its benchmark rate between 3.5% and 3.75%, marking the fifth consecutive meeting without a change. While three of the twelve members of the Federal Open Market Committee voted for a 0.25 percentage point increase, the decision to hold rates was expected by much of the market.

In Brazil, the Brazilian Institute of Geography and Statistics reported that unemployment fell to 5.4% for the three months ending in June. This figure represents the lowest level for this period since the historical series began in 2012. Additionally, data from the Central Bank showed that credit delinquency remained stable at 4.7% in June; this is the highest rate since March 2011.

Market reactions varied by asset and timing. The dollar fell to approximately R$ 5.09 on Thursday morning. While the Ibovespa index closed down 1.35% on Wednesday, it advanced nearly 0.6% on Thursday morning in line with gains in Wall Street.

Federal Reserve President Kevin Warsh emphasized a commitment to a 2% inflation target and noted that inflation remains elevated due to supply shocks in sectors such as energy. Some analysts interpreted the Fed's decision as a sign that there is no rush to raise rates, which favors emerging market assets. However, other investors found Warsh's messages regarding future monetary policy and inflation to be contradictory.