Economists predict the dollar should return to R$4 this year.

Do Infomoney -  There's a saying in the financial market that exchange rates are a reputation destroyer. This is because it's an asset dependent on many variables and tends to change course frequently, causing many economists to misjudge their projections or change them many times during a year.

But there are those experts who manage to correctly predict where the currency is going, and the Central Bank has a methodology to highlight these feats: it's the "Top 5" of Focus. The report, despite being weekly and presenting market perspectives on the economy, also compiles data pointing out the institutions that were most accurate during the year.

And for some of these economists who came closest to accurately predicting the exchange rate in 2018, this year will be full of challenges, and it is unlikely that the dollar will fall below the current level of R$ 3,70. According to economist Luis Afonso of Mapfre Investimentos, who ranked first in the Central Bank's "Top 5" for long-term exchange rates, the US dollar should close the year near R$ 4,00.

"2019 will be quite volatile and many things, especially abroad, are still to come," he told InfoMoney. "I think it's difficult for the dollar to fall. I can't say that we can't have moments when the price retreats, but it doesn't make sense for the dollar to fall in this scenario," he explains.

Afonso sees the external scenario as the main driver of this currency adjustment throughout this year and points to three risk factors: 1) weaker growth in the US economy; 2) increased protectionism due to the dispute between the US and China; and 3) a greater-than-expected slowdown in China. "If only one of these factors starts to show stronger signs, the market should react more strongly," he says.

According to Bruno Lavieri, an economist at 4E Consultoria, who came in second in the short-term category, a combination of domestic and external factors is affecting the market. He believes that optimism surrounding pension reform and a more lenient view of the Fed's discourse on easing monetary adjustment were the factors that caused the dollar to fall in January and are sustaining current levels. However, this is not expected to last.

"We project the exchange rate at R$ 4,00 by the end of the year, a result of an adjustment in expectations, mainly domestic – associated with frustration regarding the content of the reform that should be approved – but also external, since the Fed will hardly be able to sustain the current interest rate level for a longer period," says the economist.

Despite this, Lavieri emphasizes that pension reform will be the most relevant factor, and not only in terms of exchange rates. "Much of the economic growth in the coming years depends on the confidence shock associated with the reform," he explains, also highlighting that the exchange rate would only be a thermometer of this expectation. "The stronger the reform, the greater the future growth and the lower the exchange rate," he concludes.