16.12.202518:06:04UTC+00Brazilian Real Weakens Amid Election Fears

The Brazilian real has declined towards 5.45 per US dollar, reaching its lowest point in nearly two months amid renewed political uncertainty that has overshadowed positive monetary signals. Despite the Central Bank of Brazil’s minutes emphasizing a vigilant approach and highlighting potential inflationary pressures, keeping the Selic rate at 15% for an extended period, markets are primarily focused on the re-emergence of political risk premiums in anticipation of the 2026 election cycle. New polling data and ongoing uncertainty about the opposition's unity have sparked concerns regarding fiscal discipline and the longevity of restrictive policies, dampening the currency's reaction to the hawkish outlook. This reassessment has coincided with a general aversion to risk, resulting in declines in equities, a sharp drop in oil prices, and persistently high US yields, thereby increasing the opportunity cost of holding the real.