Brazil’s real fell to its lowest level in almost three years as the prospect of more rate cutting soured investors also concerned that Greece’s political turmoil will sap risk demand.

The currency has dropped 4.7 percent against the dollar in 2012, the worst performance among the 16 most-traded currencies. “The real is clearly performing on the European headlines today,” Flavia Cattan-Naslausky, a local-markets strategist at Royal Bank of Scotland Group Plc, told Bloomberg. “And of course Brazil has been underperforming for a while on government intervention.”

“There’s a limit for rate cuts,” SulAmerica Investimentos’ Newton Rosa said in a phone interview from Sao Paulo. Annual inflation will pick up starting next month to reach as much as 5.3 percent by year-end, he said.

“Depending on how things evolve abroad, the real could test the limit of 2 per dollar,” said Liquidez DVTM’s Francisco Carvalho.

Brazil’s April IPCA inflation just came in at 0.64%, higher than market estimates (0.59). As expected, service inflation remains under pressure (0.76% mom, 8.0% yoy), reflecting Brazil’s solid job market. Core inflation was also strong: the average of three cores gained 0.60%, the highest in thirteen months.

After a large downside surprise in the first quarter, Q2 is kicking off with higher than expected inflation. Still, because of high IPCA prints in the same period last year, yearly inflation slid to 5.10%, from 5.24% in March.

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