USD/BRL: The real is overvalued — Lloyds Bank

According to analysts at Lloyds Bank, the bullish move in the USD/BRL over the past month, confirmed the vision of a real over-valued.

Statements key:

«The efforts of the brazilian government to move forward with pension reform to the long-term seem to have encountered resistance in Congress. A real weaker in response, suggests that investors sobreestimaron what they could achieve in terms of fiscal reform.”

“Without a continuous political impetus for positive which led to the USD/BRL to the low last year, there is a strong argument for the brazilian real to weaken modestly against the us dollar.”

“On the one hand, it is likely that the brazilian central bank to continue lowering interest rates this year due to the decline of inflation and a weak economy. This would erode the benefit of the carry, to keep the brazilian real in the coming months.»

«Our own estimates suggest that the brazilian real is overvalued by around 13% against the us dollar. However, this alone would represent a reversal of the gains of the real of the last year, thanks to the better external position of Brazil».

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