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Barclays Expect BRL To Continue Underperforming Peers

BRAZIL
  • Bloomberg report that Barclays is cautious on BRL, expecting it to continue to underperform its peers amidst the rise in inflation expectations, fiscal pressures, interest rate volatility and uncertainty over the BCB board outlook. In Barclays view, the currency needs more of a premium to compensate for local risks, adding that the government may prioritise growth and spending over achieving the inflation target midpoint.
  • Barclays note that markets are already pricing that the BCB ended the cycle in May. Hikes are priced from here, as the DI curve doesn't trade pauses and requires a hike premium as the BCB needs to rebuild credibility. Barclays think that the risks to rates are still skewed to the upside.
  • BRL has remained under pressure through Tuesday’s session, with USDBRL rising briefly above the 5.29 mark in recent trade, taking the pair to the highest level since March 2023, and notably piercing key resistance at 5.2869, the Apr 16 high.
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