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Brazilian real drops sharply; political crisis escalates

FXStreet (Córdoba) - The Brazilian real is the worst performer in the currency market before the Federal Reserve decision. USD/BRL rose to test last week intraday highs located at 3.91 (13-year high).

The pair is rising 1.50% and currently stands at 3.88. Yesterday dropped and closed at 3.82, but today the political crisis pushed the real sharply to the downside. Stocks are also falling. The Bovespa is down 0.21% and is among the few stocks indexes in red across the globe.

Problems and problems

The real continues under pressure as the outlook for the economy and Rousseff’s administration worsen every day.

Following last week Standard & Poor’s downgrade of the credit rating below the investment grade, Rousseff announced more tax increases and spending cuts in order to balance the budget. The proposals are likely to fail in Congress that now is the main focus of attention as legislators start formal discussions about the possibility of an impeachment.

With the economy in recession, growing uncertainty, interest rate at 14.25%, inflation above 9% and a political crisis, the real is likely to remain under pressure, despite what the Fed decides today.

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