The rally of the European stocks allowed the currency markets to stabilize, leading to a bounce of riskier currencies. The Brazilian real joined the rally against the US dollar even though Brazil’s credit rating was reduced by Moody’s to junk.
Yesterday, Moody’s Investor Service cut Brazil’s credit grade to Ba2 with a negative outlook. The agency cited following reasons for the downgrade:
i) The prospect of further deterioration in Brazil’s debt metrics in a low growth environment, with the government’s debt likely to exceed 80% of GDP within three years; and
ii) The challenging political dynamics, which will continue to complicate the authorities’ fiscal consolidation efforts and delay structural reforms.
Yet the big gains of European stock markets allowed the real to overcome the negative impact of the credit rate cut.
USD/BRL fell from 3.9575 to 3.9338 as of 14:48 GMT today.
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