Will the downward trend of the dollar persist beyond 2024?
Here's a fresh take on the topic:
The Buck Stumbles: Short-term Woes or Long-term Blues?
Recently, the greenback took a tumble, reaching its lowest point since October last year. On Wednesday (11), the dollar fell to R$ 5.53, a drop of R$ 0.032 (-0.57%), causing quite a stir in the financial world. But fear not, this short-term blip isn't anticipated to be a long-term issue.
According to economist Paulo Casaca from the Foundation Institute of Economic, Administrative and Accounting Research of Minas Gerais (Ipead), this currency chaos is a direct result of market tension stemming from Donald Trump's trade tariff threats. The U.S. president announced that he will decide within the next two weeks whether to slap new unilateral tariffs on other countries, causing global currencies to quiver.
Economist Maykon Douglas shed some light on the big picture. He explained that the dollar's current state is part of a significant variation observed throughout last year, with the dollar peaking at R$ 6.30 in December 2024. This steep climb was due to skepticism about domestic fiscal policy and the proposed increase in the tax-exempt bracket of IR. Douglas projected that the dollar would hover around R$ 5.60 to R$ 5.70 throughout the year, cautioning that this optimistic forecast hinges on the Trump administration's recent stance.
The chief strategist at Nomad, a fintech specializing in international accounts, Paula Zogbi, reinforced the idea of commercial uncertainties and underlined a future scene of caution. She explained that the ongoing impasse around revenue measures, the lack of clear spending control proposals, and concerns about an expansionist fiscal policy ahead of the election year keep Brazil's risk exposure high.
Buckling Under Inflation?
While the recent dollar drop might bring a glimmer of relief to some, economists suggest it won't significantly impact the country's official inflation in the short term. Paulo Casaca from Ipead mentioned that currency fluctuations typically have medium and long-term effects, involving structural changes.
Economist Maykon Douglas further explained that dollar fluctuations first impact producer inflation, triggering effects that eventually reach consumers. However, he warned that this temporary dollar dip alone might not be enough to fully rebalance prices, with underlying service inflation still above the target ceiling.
- 💵 DOLLAR
- 💰 EXCHANGE RATE
- In the context of rising market tension from trade tariff threats, investors might find an opportunity in this temporary drop of the dollar exchange rate, potentially impacting personal-finance strategies.
- The ongoing volatility in the exchange rate of the dollar could mean a shift in financing decisions for businesses dealing with foreign trade, given the influences of commercial uncertainties and fiscal policies on the currency.
