Always only after Carnival

CAUSE: They say the year only truly begins after Carnival here in Brazil, but when it comes to the financial markets, that’s not quite the case. In fact, I’d venture to say there’s barely a pause at all, let alone during Carnival—which is only a "holiday" in Brazil. Since the first day of this year, a lot has already happened, especially in the foreign exchange market. You see, we ended 2024 with our exchange rate signaling an upward trend, with the quote reaching US$/R$6.20. But 2025 arrived, and since then, the exchange rate has only fallen—and, curiously, without any apparent sound economic reason. I mean, the data hasn't changed much, and the uncertainties remain. The fact is that today we are talking about a rate closer to US$/R$5.70 (a drop of nearly 8% since the beginning of January).

CONSEQUENCE: The first consequence was observed yesterday, with a slight downward revision in exchange rate projections for the end of this year. However, it is still too early to say for sure that this behavior is a trend. As mentioned above, there are no real reasons for such an improvement (or perhaps the previous decline was exaggerated?), and there are still many uncertainties, especially regarding tariff issues in the US and the evolution of the fiscal situation in Brazil. In other words, the recent drop in the dollar may be more related to speculative movement than to economic fundamentals, and whether what comes after the Carnival festivities will be a hangover or a renewal, we will find out later.

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