EUR/BRL Outlook:
The EUR/BRL exchange rate is likely to decrease, currently trading below its recent average and near recent lows. The combination of weaker German economic data and rising pressures on the Brazilian real suggest a continuing downtrend.
Key drivers:
• Rate gap: The European Central Bank has held interest rates steady, while the Central Bank of Brazil remains cautious, maintaining a high Selic rate, which pressures the BRL.
• Risk/commodities: Oil prices are significantly above average levels, which could support BRL exports; however, the real's dependence on commodity prices is a double-edged sword given recent declines.
• One macro factor: The Brazilian government's budget cuts to social programs may limit consumer spending, impacting overall economic activity.
Range:
The EUR/BRL is expected to drift within its recent range, with prolonged volatility due to external pressures.
What could change it:
• Upside risk: An unexpected recovery in the Eurozone economic sentiment could strengthen the euro.
• Downside risk: Continued strength in the U.S. dollar could further depress the Brazilian real, widening the exchange rate gap.