Dollar in Brazil Falls to Almost 7-Year Low

US dollar falling face the Brazilian real Foreign investments in Brazilian stocks and bonds keep making Brazil's currency, the real, stronger while the dollar continues to fall. This Thursday, May 31, the American currency fell to its lowest value in over six years.

The dollar retreated 0,82% closing at  1,926 reais the best show for the real since November 2000. In May alone, the US dollar fell 5.4% in relation to the Brazilian currency. The decline for 2007 has been 9.8%.

Brazilian Finance Minister, Guido Mantega, gave journalists his own explanation for the dollar decline. According to him, among the contributing factors to the fall are interest by foreigners in Brazil and funds received by the multinational steel company Arcelor Mittal to pay dividends and stockholders. The company's press office wouldn't confirm, however, the information that they got a dollar infusion.

Financial analysts say that a big chunk of the fresh dollars coming into Brazil is the result of foreign investor drawn by the country's high interest rates (12.5% for the Selic, the nation's benchmark interest rate) as well as Brazil's favorable economic scenario. The risk Brazil as calculated by JP Morgan Chase Bank is at 142 points on a down trend.

As Mário Paiva, an exchange rate analyst for brokerage house Liquidez, explains, the purchase of dollars by Brazil's Central Bank (BC) is not enough to contain the excess of the American currency in the market: "It has become a snowball. The more the BC reinforces its reserves, the more the country gets closer to investment grade and more the Brazil risk falls and the dollar flow increases."
 
It's expected that the low dollar will convince Brazil's Monetary Policy Committee (Copom) to reduce the Brazilian basic interest rate by 0.5% to 12% when they meet next week, on June 5 and 6. They might cut another 0.5% in their July 17 and 18 meeting.

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