BRL and the recent CPI print – watching for follow-through
Interesting to see $BRL reaction today, currently trading around 5.2112, after the latest US CPI data. The initial pop yesterday had some thinking we'd see a more sustained pullback, but it's been a grind. You'd think with inflation showing some signs of cooling, at least on certain fronts, we'd see some of the riskier currencies get a bit more breathing room.
My take is that while the headline number might offer some comfort, the underlying sentiment around rates isn't quite ready to pivot dramatically. The Fed's messaging has been consistent about data dependency, and one print isn't going to redefine their trajectory. I'm keeping a close eye on $BRL specifically to see if it can hold this range, or if the hawkish tilt from other central banks and the broader dollar strength continues to put pressure. Definitely a situation where I'm more inclined to watch for clear breaks rather than anticipate the turn too early.
I'm wondering if the market is still pricing in a higher for longer scenario for the Fed, which would naturally limit how much 'breathing room' we see for emerging market currencies like BRL, even with a single CPI print. It feels like the focus is still very much on the rate differential.