The real hit a seven-week high on carry-trade demand and shifting emerging-market flows, while Brazil’s 10-year yield climbed above 14.75% amid inflation, fiscal and debt-supply concerns in late July.
Brazilian markets moved in opposite directions in July, with the real strengthening to 5.06 per U.S. dollar, its strongest level in seven weeks, while the 10-year government bond yield rose above 14.75% from 14.54% earlier in the month. The currency was supported by renewed carry-trade demand, elevated Selic rates and a temporary shift by emerging-market investors away from the dollar as tensions between the U.S. and Iran escalated. At the same time, bond yields rose as investors priced in the prospect of higher-for-longer rates, increased government bond supply, rising energy and commodity prices, and worsening fiscal pressures, including a wider-than-expected BRL 164 billion nominal budget deficit. Trade remained an overhang, with investors awaiting measures to soften the impact of fresh U.S. tariffs, although key exports including beef, coffee, rare earths, energy products, aircraft and aircraft parts were exempt from the new 25% tariff.