The Brazilian real strengthened past 5.33 per US dollar, testing its strongest levels since May 2024 amid sustained foreign inflows and a wide interest rate differential. A softer US dollar has coincided with renewed demand for local assets, with non-residents adding roughly R$7.7 billion last week and January inflows nearing R$12.4 billion, lifting demand for reais through domestic bond markets. Support remains anchored by the Selic at 15%, with the first rate cut still expected only from March, preserving attractive real yields and keeping carry flows intact. External accounts have also helped, as a solid December trade result and foreign direct investment more than covering the 2025 current account deficit eased near-term FX funding needs. At the margin, record tax revenues of R$2.89 trillion in 2025 have improved short-term cash flow dynamics and reduced immediate financing pressure, reinforcing the real’s strength despite lingering fiscal concerns.