Perspectives on monetary tightening in the US have pushed the dollar above R $ 5.61

Dollar rupee note. May 26, 2020. REUTERS / Ruvic data

SAO PAULO (Reuters) – The dollar strengthened to 5.61 against the reais on Friday afternoon, amid growing expectations that the US Federal Reserve will tighten its monetary policy sooner than expected.

At 15:26 (eastern time), the dollar rose 0.45% to 5.5945 reais, on its way to record its fifth consecutive daily gain after fully recovering losses recorded earlier this Friday.

During the session, the US currency fluctuated between a low of (-0.87%) 5.5215 reais and a high of 5.6121 reais (+ 0.76%).

Here are the peaks of the session following the rally of the dollar abroad. The currency index against the basket of strong pairs rose 0.42% at 3:27 pm.

Investors echoed the views of two top Federal Reserve (Fed) officials that the central bank needs an acceleration in the pace of reducing incentives.

Richard Clarida, deputy chairman of the Finance Commission, said on Friday that it would be “very appropriate” to discuss accelerating the bond purchase cuts at the next Fed meeting in December, while director Christopher Waller said the bank could double its pace. Reduce incentives in January.

There is a broad view in the market that the central bank’s asset reduction will precede the US interest rate hike. Amid signs of rising economic activity and consumer prices in the country at a rate that has been high for more than three decades in October, there are growing challenges that the central bank may raise borrowing costs early next year.

It is widely believed that higher interest rates will benefit the dollar in the world’s largest economy, as they will increase yields on U.S. bonds, making it a safer investment target.

The domestic environment is fraught with financial uncertainty as investors monitor the progress of the Precatório PEC in Congress by providing additional support to the US currency.

(By Luana Maria Benedetto)

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