USD/BRL heads for record close as Brazilian real tumbles

• Brazilian real leads losses across emerging market currencies, Turkish lira follows closely.
• Central Bank of Brazil expected to announce rate cut on Wednesday.

The USD/BRL rose on Wednesday ahead of the Central Bank of Brazil decision and following the revision of Brazil’s rating outlook to negative from Fitch. The Brazilian real was the worst performer among the most traded currencies.

Political tensions in Brazil, the economic slump and global risk aversion continue to affect the real. Also on Wednesday, a stronger US dollar help the USD/BRL rally.

The cross climbed to 5.69, slightly below the intraday record of 5.74 (April 24) and it was trading at 5.68, on its way to the highest close ever, up 2%. 

Brazil's central bank will announce at 21:00 GMT its monetary policy decision. Market consensus point to a 50bps cut to 3.25% in the key interest rate.

“We see very little argument to keep the BCB from easing another 50bps at the May meeting. The substantial depreciation in BRL has failed to pass through to broader inflation aggregates thus far, save for a small impulse before the Covid-19 crisis took hold of the Western Hemisphere”, explained analysts at TD Securities. They continue to see a depreciation path for the BRL “with little impact from the interest rate decision for now.”