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The week began with our exchange rate under pressure due to caution ahead of the Fed's decision and an increase in domestic risk perception, amid political noise and the release of election polls. Following the Fed's decision to hold interest rates steady, the central bank's more dovish tone and a core PCE (consumer inflation indicator) reading below expectations weakened the dollar internationally, allowing the real to appreciate. Domestically, however, political uncertainty continued to limit a more significant strengthening of the Brazilian currency, while the high interest rate differential continued to support the exchange rate by attracting capital flows into local assets.

Similarly, the yield curve ended the week lower, reflecting the perception of a slightly more benign inflationary environment. The July IPCA-15 came in below expectations, reinforcing the view that inflation remains on a downward trend, even if it stays above target. At the same time, labor market data showed a gradual moderation in economic activity. Together, these indicators reduced pressure for a more restrictive monetary policy, favoring a flattening of the curve (a reduction in risk premiums), particularly at the short and intermediate tenors.


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