Why is the dollar falling in recent days?

Since the COVID-19 pandemic began, the dollar soared to around R$5. However, last week, the dollar reached R$4.84, the lowest value in two years. What is behind this decline? Let’s explore this on the Modal blog.

In This Post, You Will See:

  • What is causing the dollar to fall?
  • Is it time to buy dollars or travel abroad?
  • Will the decline persist?

What Is Causing the Dollar to Fall?
In recent days, the dollar has been falling, hitting R$4.84 this Wednesday (23rd), the lowest in two years. This decline is mainly due to increased foreign investments, as Brazil has proven to be an attractive destination.

The war in Ukraine and economic sanctions have led many countries to seek alternatives for commodity supplies. The increase in corn and oil prices is an example of this. In this context, Latin American countries like Brazil are standing out for their lower vulnerability to geopolitical tensions.

Furthermore, high interest rates in Brazil and the interest rate differentials between the US and other economies have attracted dollars to the country, boosting the real in 2022. Currently, Brazil has the second highest real interest rate in the world, second only to Russia.

The Central Bank’s Monetary Policy Committee (Copom) assessed that the conflict between Russia and Ukraine could have a lasting impact on inflation, potentially requiring new increases in the base interest rate, currently at 11.75% per year. These considerations were included in the latest committee minutes published recently.

Investors are also focused on the trajectory of global interest rates. The Fed raised rates by 0.25 percentage points last week, and some officials suggested the possibility of a 0.5 percentage point adjustment.

Is It Time to Buy Dollars or Travel Abroad?
For those with money or needing to travel, experts recommend buying dollars as soon as possible to take advantage of the current exchange rate, as it may not last long.

Due to risks in Brazil, especially in an election year, the dollar’s decline may be temporary. Many important events are happening abroad, and the Brazilian electoral process is full of uncertainties.

What about traveling to Disney or Europe? Is it time to buy tickets? Experts say no. Although the dollar has fallen, it is still valued compared to pre-pandemic levels. On February 10, 2020, the dollar was worth R$4.32. Therefore, the cost of international travel and purchases abroad remains high.

Will the Decline Persist?
Experts believe caution is needed from the second quarter onwards, when the Brazilian election will be the focus of investors, possibly causing the dollar to rise again.