Reuters: US Dollar Report: EMERGING MARKETS-Brazil real gains past 2/dlr, interest rate futures drop

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EMERGING MARKETS-Brazil real gains past 2/dlr, interest rate futures drop Jan 29th 2013, 13:43 Tweet Share this Email Print Related Topics Currencies » Bonds News » Bonds » Markets » Tue Jan 29, 2013 8:43am EST * Real stronger than 2/dlr for 1st time in nearly 7 months * Central bank likely to tolerate stronger real due to inflation * Brazil interest rates futures drop By Walter Brandimarte RIO DE JANEIRO, Jan 29 (Reuters) - The Brazilian real on Tuesday strengthened past the 2-per-dollar mark for the first time since July 2, crossing the threshold that for nearly seven months had been considered a boundary of a trading band informally set by policymakers. Gains were fueled by signs that inflation concerns are starting to trample the government's goal to stimulate exports, despite a November pledge by Finance Minister Guido Mantega that a real weaker than 2 per dollar "was here to stay." In recent months, the central bank had intervened in the market to keep the real weaker than 2 per dollar. It initially imposed an informal trading band of 2.0 to 2.1 per dollar, later narrowing that range to 2.0 to 2.05 per dollar as inflation pressures mounted. Analysts believe the central bank will now keep the real around 2 per dollar, allowing it to further strengthen if needed to curb inflation, as a stronger currency lessens the costs of imported items in reais. "We think the real could go as low as 1.95 or 1.90 (per dollar) with the central bank planning to use this FX appreciation to control inflation expectations," Citibank analysts wrote in a note to clients. The real last traded at 1.9879 per dollar, 0.7 percent stronger than Monday's close. It had rallied around 1.5 percent in the previous session as investors interpreted a central bank decision to roll over traditional currency swaps as a sign that the informal trading band was shifting. Those contracts, which emulate the sale of dollars in the futures market, were offered by the central bank when the real was already strengthening, showing a green light to additional currency gains. Brazil's interest-rate futures fell as a stronger real suggested the central bank is buying time before raising the base Selic rate to fight inflation. The interest-rate contract maturing in Jan. 2014, one of the most traded, dropped 5 basis points to 7.19 percent. Latin American FX prices at 1340 GMT: Currencies daily % YTD % change change Latest Brazil real 1.9870 0.68 2.67 Mexico peso 12.7400 0.20 0.97 Chile peso 473.1000 -0.02 1.18 Colombia peso 1778.0000 0.10 -0.67 Peru sol 2.5600 -0.08 -0.35 Argentina peso 4.9700 0.05 -1.16 Argentina peso 7.6400 -0.26 -11.26 Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (0) Be the first to comment on reuters.com. Add yours using the box above.

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