Brazil’s real sinks after Lula’s re-election victory
Investors react to Lula's victory with a sharp decline in the real and concern over increased spending and fiscal challenges.
Brazil’s real dropped against the United States dollar on the heels of Brazil’s President Luiz Inacio Lula da Silva’s unexpected re-election after right-wing Flavio Bolsonaro, the son of former President Jair Bolsonaro, led in the first round of voting earlier this month.
Brazil’s currency dropped against the dollar by 12 percent in spot trading. Bovespa stock index futures tumbled nearly 15 percent on Monday.
“I’m not surprised the real is sinking sharply; traders are covering their bets that assume a Bolsonaro victory and tighter fiscal policy,” Rachel Ziemba, adjunct senior fellow at the Center for a New American Security, told Al Jazeera.
“They [investors] assume more domestic spending and higher rates in Brazil. However, the real is still likely to be supported by strong commodity revenues,” Ziemba noted.