Time is the master of reason

BRAZIL ECONOMICS - Report 24 Feb 2025 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

The appreciation of the Brazilian real at the beginning of 2025, close to 7.6%, partially reversed the exchange rate depreciation process observed throughout last year, which had intensified in December.

This movement at the beginning of the year followed the weakening of the U.S. dollar in the global market, particularly against the currencies of emerging markets, especially in Latin America. Meanwhile, there was a slight improvement in asset prices in Brazil, despite worsening fundamentals.

Our perspective is that the recent exchange rate appreciation will not be sustainable, given the high risks associated with Brazil's economic policy and the handling of the U.S. economy under Trump, which may prove to be more disruptive than the market has anticipated.

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