Dollar retreats and Stock Exchange falls sharply as investors wait for new economic data

In a session without triggers so far, investors await new economic data that should be released this week, with an eye on the Fed's (Federal Reserve, the North American central bank) interest rate trajectory.

At 1:10 pm, the US currency had fallen 0.34%, quoted at R$5.150. The Stock Exchange had a sharp drop of 1.25%, to 171,892 points, with Ambev among the biggest pressures.

The week begins without major events on the Brazilian macroeconomic agenda. On Friday, the early July 4th holiday in the United States reduced the liquidity of operations - and, this Monday, the return of investors is already shaking up the trading sessions.

The focus of the markets in recent weeks has been the Fed's interest rate trajectory. The scenario for American monetary policy changed after the arrival of Kevin Warsh as president of the central bank. Not a fan of signaling his next steps, the new chair has left investors in the dark.

He, however, has reinforced that the Fed will not be tolerant of inflation above the 2% target. In May, the PCE index showed that, over the last 12 months, prices increased 4.1%, more than two percentage points above the target.

"If there are people in households, in the business sector or in the financial markets who thought this central bank would be comfortable with an inflation target above 2% - well, I think they will be disappointed: we are going to guarantee price stability in the US," Warsh said last Wednesday (1).

Attentive to inflationary pressures, operators monitor economic activity data. On Thursday, the payroll report brought relative tranquility to the markets by showing that the creation of job vacancies was below expectations. 57 thousand jobs were opened in June, compared to expectations of 110 thousand.

With the labor market relatively balanced, family consumption tends to remain stable, reducing inflationary pressures.

Investors now await data from the services sector and, in the early afternoon, comments from Christopher Walker, director of the Fed.

For now, the expectation is that the Fed will only raise interest rates again in October - until Thursday, most bets focused on the September meeting. The minutes of the American central bank meeting will be released on Wednesday and may indicate more clearly the direction of monetary policy in the coming months.

Higher interest rates in the US are bad news for investments around the world. When Fed Funds rise, yields on US treasuries, fixed income securities, also rise, attracting resources from operators globally as they are practically risk-free assets.

In this session, treasury yields fell. The ten-year bond - a global reference for investment decisions - fell 0.02 percentage points, to 4.459%, also pulling Brazil's future interest rates down.

The DI (Interbank Deposit) rate for January 2028 was 14.04%, down 0.06 percentage points. At the long end of the forward curve, the DI rate for January 2035 was 14.35%, also decreasing 0.06 points.

In Brazil, the highlight of the day was the Central Bank's Focus report. The survey found that the median of economists' projections for inflation this year went from 5.33% to 5.30% and for the next year it went from 4.17% to 4.18%.

The basic Selic rate projected for the end of this year remained at 14% and for the end of next year at 12%. Selic is currently at 14.25%.

"The divergence of monetary policy between the Fed, which has an interest rate hike bias, and the BC, which has an interest rate cut bias, weakens the real," said the director of consultancy firm Wagner Investimentos, José Faria Júnior, in a report to clients.

"During the week, the dollar/real managed to close below R$5.20, that is, below the long-term concentration line... Thus, the chances of the dollar continuing to rise, towards R$5.30 or R$5.35, reduced", he assessed.

On Friday, the US currency in cash closed with a drop of 0.76%, at R$5.168.