EUR/BRL Outlook:
Slightly weaker, but likely to move sideways as the rate is below its recent average and fluctuating within a stable range.
Key drivers:
• Rate gap: The European Central Bank (ECB) has kept interest rates on hold, while Brazil's Central Bank maintains high rates to combat inflation, widening the interest rate differential.
• Risk/commodities: Oil prices are trading above average, which can impact Brazil's trade balance positively through its oil exports, potentially strengthening the BRL.
• One macro factor: Recent data showed eurozone inflation dipped below target, raising concerns about future ECB rate cuts that could weaken the euro.
Range:
EUR/BRL is expected to hold within its recent range as it remains below the 90-day average, with limited directional bias.
What could change it:
• Upside risk: A stabilization or resolution in the geopolitical landscape could enhance the euro’s appeal and strengthen its value.
• Downside risk: Any further decline in eurozone inflation or unexpected ECB policy shifts could lead to additional euro weakness.