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Impressive USDBRL Turnaround Amid Lula Spending Headlines

BRAZIL
  • Despite the early outperformance for the real on Friday and a noticeable test below key support for USDBRL, the pair has had a sharp turnaround and now trades up 0.5%, back above the 5.00 mark after printing as low as 4.9310.
  • Heavy price action for major equity indices have contributed to some greenback strength, however, the key driver may have been President Lula’s comments on spending, reigniting fiscal concerns.
  • Lula said on Friday that his government does not need to erase its fiscal deficit next year, given the importance of funding for priority projects and construction investments. Addressing reporters at a news conference, Brazil’s president said there is no need to eliminate the budget deficit immediately and chided investors for demanding targets that cannot be met.
  • A reminder of the headlines:
    • Lula says his gov't does not need to erase fiscal deficit in 2024
    • Lula says not going to set a fiscal target that forces me to start the year by cutting billions from priority projects
    • Lula says if Brazil has a deficit of 0.5% or 0.25% of GDP, it's practically nothing
    • Lula says we'll do everything we can to meet the fiscal target, but it doesn't have to be zero deficit – Reuters News
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