Forex Blog: Currency Trading News & Analysis.

October 30th 2008

Brazil Aims to Prop Up Real

In a bold but perhaps necessary move, the Central Bank of Brazil recently announced an injection of $50 Billion into forex markets intended to stem the 30% fall in the value of the Brazilian Real that has taken place so far this year. Unfortunately for Brazil, the forces tugging on emerging market currencies far exceed the potential counter-efforts that such a country is capable of waging. Call it a lack of confidence, or a sudden aversion to risk. Either way, investors are fleeing regions that only months ago, they were still flocking to in droves. High interest rates, strong economic fundamentals, even capital injections and liquidity initiatives are no match for the financial tsunami. In addition, it’s not as if the Brazilian economy is necessarily in a good position to emerge from the crisis unscathed, as its neighbor Argentina could soon default on its debt…again. Bloomberg News reports:

The real has sunk 31 percent from a nine-year high of 1.5545 reached on Aug. 1 as the global crisis has driven down prices on the country’s commodity exports and eroded demand for higher- yielding, emerging-market assets. Only the South African rand, down 35 percent, has fallen more over that time.

Read More: Brazil to Pump $50 Billion in Currency Market to Shore Up Real

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Posted by Adam Kritzer | in Central Banks, Emerging Currencies | No Comments »

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