GBP/BRL Outlook:
The GBP/BRL exchange rate is likely to decrease as it trades near recent lows and is below its 90-day average. This downward pressure is primarily due to expectations of an interest rate cut by the Bank of England.
Key drivers:
• Rate gap: The Bank of England is expected to cut rates, while the Central Bank of Brazil has kept its rates steady at a high level, resulting in a widening interest rate differential that favors the BRL.
• Risk/commodities: Rising oil prices, currently at significant highs, may enhance the appeal of the BRL, as Brazil is a major exporter of commodities including oil.
• Political uncertainty: The upcoming 2026 elections in Brazil are increasing the risk premium on the BRL, impacting its stability amid fluctuating investor confidence.
Range:
GBP/BRL is expected to drift within its recent range as it consolidates near low levels.
What could change it:
• Upside risk: A surprise economic recovery in the UK could lead to revised expectations about interest rates.
• Downside risk: Further declines in the pound could arise if upcoming UK economic data confirms weakening conditions.
