Dollar sees biggest annual gain against the real since 2008.
The US dollar closed stable on the last trading day of the year, but accumulated its biggest gain against the Brazilian real in 2013 since 2008, with prospects of continuing to rise amid a scenario of domestic and global uncertainties.
By Bruno Federowski
SAO PAULO, Dec 31 (Reuters) The dollar closed stable on the last trading day of the year, but accumulated its biggest gain against the real in 2013 since 2008, with prospects of continuing to rise amid a scenario of domestic and global uncertainties.
The US dollar closed stable on Tuesday, at 2,3575 reais for sale. Year-to-date, it has risen 15,11 percent, the largest increase since 2008, when it rose 31 percent amid the global financial crisis. In December, the currency advanced 0,86 percent.
Tuesday's session saw almost no trading, as only transactions that do not quantitatively alter currency positions were permitted.
The prospect of continued reduction in US monetary stimulus and fears about Brazil's fiscal situation, aggravated by the elections, should worry investors in 2014, according to analysts.
"This was a very volatile year with dollar appreciation, and next year has all the makings of even more ups and downs," said Glauber Romano, a currency trader at Intercam.
The Federal Reserve, the US central bank, will begin reducing its monetary stimulus in January, cutting its monthly bond purchases by $10 billion to $75 billion.
Although the initial market reaction to the Fed's announcement was subdued, analysts say that uncertainty about the pace of the program's withdrawal should continue to generate currency turbulence.
"The market always tends to anticipate things, but of course, for better or for worse, everyone bets on a different side. Whenever there is any signal from the Fed about withdrawing stimulus, there is some kind of profit-taking," said Itaú BBA economist Gabriela Fernandez.
Furthermore, Brazilian public finances have faced difficulties throughout the year, worsening the country's image in the eyes of international investors. The market fears that the deterioration of domestic finances will lead to a downgrade of Brazil's credit rating, significantly reducing the flow of resources.
In November, the Brazilian public sector recorded a record primary surplus for the month, but this was boosted by extraordinary revenues. The market perception is that the government will still not be able to meet the adjusted target of just over 110 billion reais for 2013, equivalent to 2,3 percent of the Gross Domestic Product (GDP).
"And next year, the fiscal situation should be worse than this year's, since it's an election year," stated Paulo Petrassi, managing partner of Leme Investimentos.
However, analysts pointed out that the Central Bank's constant intervention in the exchange rate tends to mitigate some of these pressures.
The Central Bank has been intervening daily in the foreign exchange market through traditional currency swaps—equivalent to the future sale of dollars—and line auctions. Next year, the monetary authority has already announced it will reduce the intensity of its interventions, but has left the door open for further operations if necessary.
"A lower level of intervention will allow the real to depreciate in a controlled manner, we hope, a process that we consider essential for the adjustment of the Brazilian economy," said Tony Volpon, head of emerging markets research for the Americas at Nomura.
The Central Bank will return to the markets on Thursday with an offer of 4 traditional currency swap contracts, already under the new format of the daily ration program.