The current market bias for the EUR to BRL exchange rate is bearish.
Key drivers include:
- The interest rate differential between the European Central Bank (ECB) maintaining rates and expectations of Brazil's Central Bank potentially cutting rates by March 2026.
- The ongoing geopolitical tensions in Ukraine continue to weigh on the euro, while the Brazilian Real is influenced by rising concerns regarding Brazil's fiscal situation amidst upcoming elections.
- Inflation rates remain a factor, with the ECB cautious about a stronger euro potentially impacting inflationary pressures, while high inflation in Brazil also complicates the economic landscape.
The near-term trading range for the EUR to BRL could remain within a broad band, reflecting current volatility levels.
A potential upside risk includes a marked improvement in Eurozone economic data, which could support the euro. Conversely, a downside risk lies in the political uncertainty surrounding Brazil’s upcoming elections, which could further diminish confidence in the Real and lead to depreciating trends.