EUR/BRL Outlook:
Slightly weaker, but likely to move sideways, as the rate is below its recent average and lacks a clear driver.
Key drivers:
• Rate gap: The European Central Bank (ECB) has held interest rates steady, while Brazil's Central Bank is approaching potential easing, creating downward pressure on the euro relative to the real.
• Risk/commodities: Oil prices have surged recently, which often benefits the Brazilian economy; however, their current volatility adds uncertainty to the BRL's strength.
• One macro factor: Brazil's strong trade surplus has been supportive, particularly driven by agribusiness exports.
Range:
The EUR/BRL is expected to hold within its recent 3-month range, though further declines are possible if conditions remain unchanged.
What could change it:
• Upside risk: A surprise increase in eurozone inflation could prompt the ECB to rethink its monetary policy.
• Downside risk: A significant drop in global commodity prices could pressure the BRL, leading to further euro appreciation.
