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Economic Sentiment at Late 2020 Lows


USDJPY still eye 145.00


Month end extension (cross assets)


Bounce Off Lows Deemed Corrective as Futures Fade


WTI, Gold Retrace Off Wednesday Highs

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  • Following the volatility in financial markets and the realisation of large breaches to the spending rule, analysts have started to predict more aggressive tightening from the Brazilian Central Bank, as early as next week.
  • Legacy Capital now expect the BCB to lift interest rates by 150 basis points at the next policy meetings and the Selic rate should reach 11% at the end of the monetary tightening cycle.
  • UBS also expects 150bp rate hike at next Brazil policy meeting.
  • Additionally, JPMorgan believe the central bank should and will react to the deterioration, stepping up the pace of tightening to 125bp hikes in the next couple of meetings with a final 100bp in February leading terminal rates to 9.75%.
  • Latest headlines suggest Brazil Economy Minister Paulo Guedes has decided to stay in the job even after losing four key members of his team, believing his departure would worsen the ongoing crisis.
  • The path of least resistance appears to be higher for USDBRL, signalling scope for an extension towards 5.7558, the Apr 13 high.
  • Without currency strength to lean against inflation, it appears that bond investors have little choice but to hedge against additional rise in consumer prices and bet on a steeper or longer tightening cycle.

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