The Brazilian real strengthened toward 5.36 per US dollar, reaching six week highs, amid a firmer domestic economic backdrop and decisive regulatory action, which reduced Brazil’s risk premium. Domestic data surprised to the upside after IBGE reported retail sales rising 1.0% month on month in November and 1.3% year on year, reinforcing confidence in near term activity and lowering the risk premium demanded on Brazilian assets. At the same time, the Central Bank’s January 15 decision to place Reag into extrajudicial liquidation removed a fraud linked tail risk associated with Banco Master, signalling regulatory resolve and limiting concerns about broader financial contagion. The macro backdrop has also turned more supportive as annual inflation ended 2025 back within the target range, allowing expectations to shift toward earlier but moderate Selic easing while the policy rate remains at 15%, preserving Brazil’s yield advantage and supporting carry inflows.