Brazil: Real Tests May 2024 Highs.

The Brazilian real strengthened past 5.18 per US dollar testing it highest level since May-2024 amid high domestic carry, clearer monetary policy guidance, and a weaker US dollar. Central bank minutes signalled that easing is likely to begin in March but stressed a strictly data dependent pace, reinforcing expectations of gradual cuts and keeping real yields attractive with the Selic still at 15%. This predictable policy path trimmed the policy risk premium without triggering a dovish repricing. At the same time, a softer US dollar further supported inflows into high yielding emerging market currencies. External fundamentals also helped, as favourable terms of trade, strong export receipts, elevated iron ore shipments, and projections for a large trade surplus continue to underpin foreign currency inflows and ease external financing concerns. Still, persistent fiscal uncertainty and political noise cap upside by sustaining a latent risk premium.