Signs from Federal Reserve Chairman Jerome Powell that the US interest rate hike may not go very far triggered a rally in risky assets on Wednesday afternoon.
With firm gains on the stock exchanges in New York and the fall of the US currency against both strong and emerging currencies, investors tried to accelerate the dismantling of defensive positions in the domestic exchange market.
Already in decline before the announcement of the decision of the Fed and Jerome Powell's press conference, the dollar increased its pace and renewed successive lows in the last hours of business, reaching the level of R$ 5.25, falling to R$ 5.2428.
At the end of the session, the currency retreated 1.84%, quoted at R$5.2509, the lowest closing value since June 30, when it was traded at R$5.2348.
The real, which tends to get worse than its peers in episodes of risk aversion, today comfortably led the gains against the dollar between emerging currencies and commodity-exporting countries.
It was the third session in a row that the dollar fell in the domestic market, which now accumulates losses of 4.51% for the week.
The appreciation in July, which surpassed 5% at the end of last week, became only 0.31%.
Traders note that a reduction in defensive positions in the foreign exchange futures market was already underway in recent days, given the proximity of the formation of the last Ptax of July 29th and the rollover of contracts that expire in August.
This movement, driven by a recovery in commodity prices, was accentuated today with the rally in risky assets.
As expected, the American Central Bank announced an increase in the basic rate by 75 basis points, to the range of 2.25% and 2.50%, and added, in its statement, that the cycle of interest rate hikes continues.
The Fed acknowledged that activity was showing signs of moderating, but noted that the job market remained robust.
But what really moved asset prices were Jerome Powell's statements at a press conference after the statement.
“We have reached an interest rate range that we believe to be neutral,” said the chairman.
Going forward, he pointed out, monetary policy needs to be “at least moderately restrictive”.
Probably, he added, it will be appropriate to moderate the pace of interest rate hikes, that is, there should be no further hikes by 75 basis points at the next monetary policy meeting.
Powell, however, avoided committing to forward guidance.
"We think it's time to go meeting by meeting and not provide the kind of clear guidance that we provide on the path to neutral interest."
Absent from the minutes of the previous meeting of the American Central Bank, the word recession appeared in Powell's speech, for whom such a scenario is inconsistent with economic indicators, especially the job market.
JF Trust chief economist Eduardo Velho says that Powell's speech, with the revelation that interest rates have already reached neutral levels in the Fed's view, suggests that the US basic rate will not go that far.
“The market was very pessimistic with the terminal interest between the end of May and June because of the very high inflation. And now it is correcting that expectation. The interest should not exceed 3.5%”, says Velho. "Unless there is a very negative surprise with inflation, which seems to have already peaked, the Fed should raise rates by 50 points at the next meeting."
The chief economist at Banco Original, Marco Caruso, also draws attention to Powell's speech that rates are close to neutral after the recent round of increases.
“The interpretation is that they are close to the neutral nominal rate estimated by them and that, in a not too distant horizon, the adjustments will be moderate. Although part of the justification for this is negative, a fear of recession, the markets liked it”, says Caruso, in a note. “The speech sounds to financial assets like a flirtation with the old way of being of developed central banks, which spent almost 15 years injecting liquidity and sustaining risk taking”.
Outside, the DXY index, which measures the performance of the dollar against a basket of six strong currencies, dropped sharply and touched a low in the house below 106,300 points, with a loss of almost 1% of the American currency against the heavily punished euro. in the last few weeks.
The rate of 2-year Treasuries, more linked to bets for the cycle of high interest rates, fell by more than 2%, starting to work below the 3% line.
Velho, from Trust, classifies today's movement of risky assets, especially the dollar, as an adjustment to the new perspective for the total cycle of high interest rates.
The possibility, he says, of a fall in American GDP between the end of this year and the beginning of 2023 is not ruled out, which could cause a correction in the American stock markets and, by extension, affect Brazilian assets.
"Unless there is a very strong movement of risk appetite abroad, which does not seem likely, I do not see the dollar returning to the level of R$ 5", says Velho. “The domestic side still weighs heavily. It is complicated from a fiscal point of view, as the two presidential candidates have signaled that they will maintain social benefits next year”.
Sources: investing.com
