On Wednesday, Brazil’s Real dropped to an all-time low close to 5.40 per dollar, as expectations intensified that the central bank will cut interest rates significantly in the coming weeks to combat the Coronavirus-fueled economic crisis.
The currency far underperformed its regional and emerging market peers on Wednesday, sliding more than 1% on the day to take its year-to-date depreciation to more than 25%.
Market participants noted the steep decline at the front end of the interest rate futures curve, which indicates that around 100 basis points of interest rate cuts this year is now being priced in.
“The Real is an outlier today, as the market is in ‘Brazilian central bank big easing’ mode,” said one hedge fund manager in Sao Paulo. The market is thinking of big front-loaded rate cuts.”
The Real traded as weak as 5.3922 per dollar BRBY, down 1.3% on the day. The January 2021 interest rate futures contract fell to around 2.60% DIJF21 from 2.80% on Monday, the day before local markets were closed for a national holiday.