USD/BRL: Markets weigh Selic path and inflows – Societe Generale

💡 DMK Insight

The Brazilian central bank’s cautious stance on inflation is crucial for traders right now. With money markets pricing in a 50 basis point cut to the Selic rate in March, but the BCB’s economist suggesting a more conservative 25 basis point reduction, there’s a potential disconnect that could create volatility. If the BCB opts for the smaller cut, it could strengthen the BRL against major currencies, impacting forex positions. Traders should watch the inflation data leading up to the March meeting, as any signs of rising prices could sway the BCB’s decision. Additionally, this situation could ripple through emerging market assets, especially those correlated with Brazilian equities and commodities. Keep an eye on the 5.5% level for the Selic rate, as any deviation from expectations could trigger significant market reactions.