Brazil: Real plummets after downgrade

By FXStreet FXStreet (Córdoba) – USD/BRL opened the day sharply higher following the downgrade of Brazil sovereign debt rating by Standard & Poor’s, losing the investment grade standard. The pair opened at 3.90, the highest level since November 2002 and then pulled back.

Currently it trades around 3.85; despite the retreat the real is the worst performer in the currency market. Price approached the 4.00 area, where record highs are located.

A negative present

The rating agency kept the outlook in “negative”, as Brazil’s fiscal problems aggravate by the economic contraction and the political environment and amid an escalation of the corruption scandal.

The downgrade was expected but “the combination of a downgrade and the affirmation of the negative outlook contributes to giving a much bleaker picture of the future of the country than one would have expected”, said Cristian Maggio, Head of Emerging Markets Strategy at TD Securities.

According to analysts from TD Securities the negative outlook reflects concerns that Brazil’s fiscal position may deteriorate further, the risk of further key policy reversals, and risk of greater economic turmoil then currently expected. “The earlier than expected junk downgrade will likely reinforce downward pressure on the real in the near-term.”
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Source:: FX Street