Brazilian Real Weakens After Interest Rate Hike, Lula's 2026 Candidacy Sparks Market Activity

The Brazilian real weakened against the US dollar on Thursday, despite the central bank implementing a significant interest rate hike and signaling further increases in the future. After rising by 1% at the beginning of the trading session, the real ultimately fell by 0.9%, closing at 6.01 against the dollar.

This change in the value of the real occurred alongside the widening of Brazil's yield curve's long end, reversing its initial downward trend.

The depreciation of the real accelerated following comments from presidential spokesman Paulo Pimenta. Pimenta's announcement that President Luiz Inacio Lula da Silva plans to run for re-election in 2026 heightened market concerns.

The 79-year-old leftist leader, currently hospitalized after surgeries to treat a skull hemorrhage, has sparked increasing speculation about his ability to run in the upcoming elections.

These financial concerns were already at the forefront following the central bank's unexpected decision on Wednesday to raise interest rates by 100 basis points to 12.25%.