Brazil’s real weakened sharply Wednesday against the U.S. dollar on concerns over the outlook for the global economy and hedge funds which had previously bet on the strength of the real attempted close their short-term positions.
The real exited normal trading at BRL1.8400 to the U.S. dollar, having slumped from Tuesday’s close of BRL1.7925 after a day of volatile trading in which the Brazilian currency fell as low as BRL1.8500.
“The real’s on an explosive path,” said Jankiel Santos of Espirito Santo Investment Bank. “Everyone’s frightened of what may happen abroad.”
The negative sentiment has been compounded by the impact of the recent set of Brazilian government measures to curb the appreciation of the real which have now started to affect the spot currency market, Santos said.
According to Sidnei Nehme of NGO, “the market lost most of its liquidity when the government interfered last month, putting up [the tax] on derivatives. Hedge funds, which yesterday held $13.4 billion in dollar/real derivatives positions and are now badly positioned, are trying to zero their positions.”
Source: Wall Street Journal