Dollar rises 2% and returns to R$ 5,14 amid political crisis.

SAO PAULO (Reuters) - The dollar closed sharply higher against the real on Monday, with the market assessing recent local news and its impact on the fiscal and economic reform agenda.

The currency, however, moved away from its session highs, following improvements in international financial markets after the Federal Reserve (Fed, the central bank of the United States) announced that it will begin buying individual corporate bonds on Tuesday, expanding the scope of asset classes benefiting from its liquidity programs.

The spot dollar rose 1,92%, to 5,1421 reais on the sell side. The real had the worst performance among major global currencies in this session.

The exchange rate traded higher throughout the day. At its peak, it jumped 3,60% to 5,2269 reais. At its lowest point, it rose 0,68% to 5,0797 reais.

The market began the day reacting to weekend news about Mansueto Almeida's request—considered a defender of fiscal responsibility initiatives—to leave his position as Secretary of the National Treasury. On Monday afternoon, Economy Minister Paulo Guedes stated that the current Director of Programs at the Special Secretariat of Finance of the Ministry of Economy, Bruno Funchal, will be the new Secretary of the Treasury.

The announcement of Mansueto's departure caught the market at a time of great concern regarding public finances, amid increased spending to cope with Covid-19.

Also in Brasília, the arrest of activist Sara Winter and five other members of the "300 pelo Brasil" group, which she leads and which supports President Jair Bolsonaro, once again highlighted the heightened tensions between the Executive and Judicial branches.

According to Guide Investimentos, the combination of domestic factors with the negative external environment earlier in the session pointed to a day of losses for local markets.

In the afternoon, however, risk assets worldwide improved on the news that the Fed will begin buying corporate bonds on Tuesday through its Secondary Market Corporate Credit Facility (SMCCF), one of several emergency tools recently launched by the US central bank to improve market functioning in the wake of the coronavirus pandemic.

Stock indexes in New York closed higher after earlier declines, and risk currencies recovered from their session lows.

"The market seems more concerned with the pandemic and its deflationary effects," said Luis Laudisio, a trader at Renascença.

This week's highlight in Brazil is the Central Bank's monetary policy decision. There is speculation that the Central Bank may leave the door open for further cuts to the Selic rate given weak inflation readings and the collapsing economy.

The Brazilian real has lost 21,96% this year, the worst global performance. The fall in interest rates is cited as a factor that has pressured the exchange rate recently, as it has reduced the rate paid on fixed-income securities and put Brazil at a disadvantage compared to other emerging markets with higher base interest rates.