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Wednesday, February 27, 2008

The Real Continues Its Upward March

Brazil's real strengthened for an eighth straight day today, alomst reaching a nine-year high, as a tumbling U.S. dollar and surging commodity prices boosted demand for the currency. The real has jumped 4.8 percent since Feb. 15, making it the biggest gainer against U.S. dollar among the world's 16 most actively traded currencies during the period. The consecutive gains are the longest winning streak since November 2005.

Bolstering the currency's allure today were comments from U.S. Federal Reserve Chairman Ben S. Bernanke suggesting that the Federal Reserve will continue to lower US interest rates, widening the yield advantages of Brazilian bonds and equities.

The real rose 0.65 percent to 1.6731 per dollar at 10:28 a.m. New York time, up from 1.6839 per dollar yesterday. At one point it touched 1.6734, the most since May 1999. The currency has strengthened 28 percent in the past 12 months, also the biggest gain among the major currencies against the dollar.

Brazil's real interest rate, calculated by subtracting annual inflation of 4.56 percent from the 11.25 percent Selic benchmark lending rate, is 6.79 percent.

Crude oil also rose above $102 a barrel today, the highest dollar level ever, as the weakening dollar led investors to buy commodities as a hedge against inflation. Brazil exports the crude oil it pumps from what are the deepest waters in the world, with recent discoveries in fields as deep as 6 kilometers (3.7 miles).

Commodity sales helped Brazilian exports rise to a record $160.6 billion in 2007. Brazil will export as much as $180 billion this year, according to Trade Ministry estimates.

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