Brazil’s real headed to its biggest drop in 18 months on concern Greece’s financial crisis may spread across Europe, derailing the global economic recovery and curbing demand for higher-yielding assets.
The real was the third-biggest decliner against the dollar among 26 emerging-market currencies tracked by Bloomberg, sinking 2.8 percent to 1.8467 at 3:58 p.m. New York time, from 1.7951 yesterday. It earlier declined as much as 5.6 percent and is down 5.6 percent this year, following the 33 percent gain in 2009.
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The central bank purchased dollars every trading day since May 2008 and bought them twice as recently as May 3 to prevent the real from strengthening. The real touched a three-month high of 1.7205 on April 30, two days after policy makers raised the benchmark interest rate 0.75 percentage point to 9.5 percent.
‘Excessive Appreciation’
The government may take additional steps to control the real should it observe “excessive appreciation,”
Nelson Barbosa, the Finance Ministry’s secretary for economic policy, told lawmakers on May 4 in Brasilia.
“The international environment will clearly have an effect on the domestic environment and could slow the rate of growth” in Brazil, said
Francisco Carvalho, head trader at Sao Paulo- based BGC Liquidez DTVM, the country’s second-largest currency brokerage.
The Dow Jones Industrial Average had its biggest intraday loss since the market crash of 1987, and oil dropped to an 11- week low as contagion from the European debt crisis spread.
The Turkish lira slid more than 3 percent, while Mexico’s peso lost 1.8 percent. Only the Argentine peso and Thai baht gained against the dollar among developing-nation currencies today.
International investors took off their bullish bets on the real this week and started wagering the real will decline, according to data compiled by the BM&FBovespa SA in Sao Paulo.
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Last Updated: May 6, 2010 16:18 EDT
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