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Brazil real sinks to 3-month low, fueling inflation concern
December 3, 2013 / 6:36 PM / 4 years ago

Brazil real sinks to 3-month low, fueling inflation concern

RIO DE JANEIRO, Dec 3 (Reuters) - Brazil's real sank to a three-month low on Tuesday, fueling inflation fears and causing interest-rate futures to change course and rise as investors bet the central bank will be forced to keep tightening monetary policy despite a weak economy.

The real traded as weak as 2.3770 per dollar after data showing the economy contracted more than expected in the third quarter reduced the appeal of Brazilian assets.

"The GDP numbers show the economy is growing at a slower pace and with high inflation, which makes the country less attractive for foreign investors," said Luciano Rostagno, chief strategist with Mizuho bank in Sao Paulo.

The real, which has also been battered by fears of an early withdrawal of U.S. stimulus, crossed a key resistance level around 2.37 per dollar, which left it bound to test the next resistance level of 2.40, analysts said.

It last traded at 2.3755 per dollar, 0.9 percent weaker from Monday's close.

A trader with a foreign bank mentioned a large purchase of dollars on the spot market as one of the reasons for the real's sharp drop in the afternoon.

"Besides that, at this time of the year you start to see companies sending dividends abroad, which also pushes the dollar up" against the real, the trader said.

Concern that a weakening currency may further fuel inflation by boosting the price of imported goods caused a sharp reversal in Brazil's interest-rate futures market.

Long-dated interest-rate contracts, which had fallen about 10 basis points following the release of third-quarter gross domestic product data early in the day, erased all of their losses and rose.

Contracts maturing January 2017 rose 6 basis points to 12.48 percent at the end of the session.

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