EUR/BRL Outlook: Slightly positive, but likely to move sideways, as the rate is just below its recent average and lacks a clear driver.
Key drivers:
• Rate gap: The European Central Bank is expected to maintain its neutral policy, while Brazil's Central Bank is facing inflation pressures that may lead to tighter monetary policy, placing upward pressure on the BRL.
• Risk/commodities: Oil prices are trading near 90-day highs, creating potential upward momentum for commodity currencies like the BRL, but the volatility in oil markets can also deter foreign investment.
• One macro factor: Brazil's introduction of stimulus measures raises concerns about inflation, impacting the BRL despite its ongoing economic recovery efforts.
Range: The EUR/BRL is likely to move within the recent 3-month range, holding steady without significant breakthroughs in either direction.
What could change it:
• Upside risk: Improved consumer confidence data from Germany could bolster the EUR against the BRL.
• Downside risk: Heightened concerns over Brazil's inflation and fiscal policy effectiveness could place additional pressure on the BRL, leading to a weaker EUR/BRL rate.
