Brazilian Real Weakens Against US Peer on Higher Inflation

The  Brazilian real weakened against multiple currency rivals in  the  middle of  the  trading week, driven mostly by  higher-than-expected inflation last month. Investors are also keeping an  eye on  monetary policy as  the  central bank is anticipated to  leave interest rates at  historic lows. Despite being one of  the  worst-performing currencies in  foreign exchange markets, the  real has rebounded more than 4% against the  US dollar over the  last month.

In  November, the  consumer price index (CPI) rose 0.89%, up from 0.86% in  October. This marked the  third consecutive increase in  price inflation. The  CPI surged to  an  annualized rate of  4.31% last month, which is the  highest level in  nearly a  year. It was also higher than the  market forecast of  4.2%.
The biggest driver of price inflation was food, advancing to a 17-year high of 15.94%. Other essentials became more expensive in November, including housing (1.47%), health care (1.53%), and transportation (1.21%). Apparel was the outlier, sliding 1.7% a month ago.
Earlier this week, the  government reported that automobile production weakened, rising just 0.7% in  November. This is down from the  7.4% spike in  October. New car registrations, however, increased by  4.6% last month.
Traders will be homing in  on  the  December monetary policy meeting. Market observers do not think officials will move on  interest rates, leaving the  benchmark rate at  2%. Still, this remains the  lowest rate on  record.
At  the  end of  last month’s policy meeting, officials warned that inflation is running higher than initially projected. It is unclear if policymakers will tighten policy should inflation run higher next year. The  Committee did note that current economic conditions require continued monetary and  fiscal stimulus.
In  the  third quarter, Brazil’s gross domestic product (GDP) expanded at  an  all-time high of  7.7%, up from a  record 9.6% collapse in  the  second quarter. The  economy witnessed tremendous growth in  construction, manufacturing, mining, and  utilities. This might play a  factor in  the  central bank’s near-term decision-making.
The  second wave of  COVID-19 seems to  have hit the  South American country. The  nation had made progress, with some days reporting zero confirmed cases. However, the  number of  single-day infections has surged to  as  high as  51,000 on  Tuesday. In  total, Brazil has reported 6.67 million coronavirus cases, with a  death toll of  178,000.
The  USD/BRL currency pair advanced 0.76% to  5.1593, from an  opening of  5.1203, at  16:38 GMT on  Wednesday. The  EUR/BRL rose 0.42% to  6.2246, from an  opening of  6.1968.
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