Brazilian Real Plunges to Record Low Against Dollar

The real, falling along with Latin American peers, is coming under pressure as traders increase bets authorities will reduce borrowing costs following the Federal Reserve’s emergency rate cut. The currency has fallen to new lows repeatedly since the beginning of February.

The central bank said in a statement on Tuesday that it’s monitoring the impact of the coronavirus outbreak on financial markets and the wider economy. Markets interpreted the statement as a signal for further rate cuts, sending swap rates and the currency lower.

Brazil’s local swap curve is pricing in a 60% chance of a half-point rate cut at the central bank’s next meeting on March 18, compared with a near zero possibility the prior week. Traders had played down chances of further rate reductions after the central bank suggested in February the easing cycle was over, but resumed bets after the Fed’s move.

The real is down 13.3% this year, the worst start since 1999. It’s underperforming peers due to its diminished carry appeal, given that local rates have dropped to a record. Weak growth numbers also weighed on the currency, as well as positioning, since it’s used as a hedge for long positions in stocks and rates.