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Friday, January 04, 2008

The Real Slips a Little

Brazil's real fell yesterday on concern that the latest U.S. jobs report signals the U.S. economy may slip into a recession, reducing demand for Brazilian exports and local financial assets. The real fell 0.2 percent to 1.7547 per dollar at 1:30 p.m. in New York after rising 1.1 percent earlier. The currency gained 20 percent against the dollar in 2007, which was the the biggest advance among the 16 most-actively traded currencies.

The vlaue of the real has been rising on the back of record sales abroad and growing interest in Brazil's high-yielding bonds following the sub-prime bust.

Brazil's benchmark stock index, the Bovespa Index, fell as much as 3.7 percent at one point.

The yield on Brazil's zero-coupon bonds due in January 2009 rose 10 basis points, or 0.1 percentage point, to 12.08 percent, according to Banco Votorantim SA.

Despite the slowdown in global growth that we'll see this year, Brazil may well be one of the emerging economies whioch is able to decouple to some extent from the path of the G7 economies. At least that is the idea which will be put to the test in 2008.

The outlook for the maintenance of Brazil's 11.25 percent benchmark lending rate to fend off inflationary pressures also favors the real while the U.S. overnight lending rate may fall below 4 percent in the not to distant future.

Brazil's central bank bought U.S. dollars in the spot market yesterday as part of a strategy to slow the currency's appreciation. The bank bought dollars at 1.7590 reais apiece at auction. The bank has bought dollars on an almost basis daily since Oct. 8.

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