The Brazilian real weakened to 6.04 per USD, retreating from a one-month high of 6.01 on January 15, as fiscal concerns continue to weigh on the currency. While the latest Prisma Fiscal report projects improved deficit and public debt ratios for 2025 and 2026, skepticism persists regarding the government’s ability to maintain its fiscal framework. High borrowing costs intensify debt servicing pressures, further undermining confidence. Adding to uncertainty, the revocation of financial monitoring measures and delays in implementing tax reforms cloud Brazil’s economic outlook. Additionally, historically high interest rates, once supportive of the real, now offer diminishing returns as fiscal risks erode investor sentiment. Economic fragility compounds these challenges, with November’s 0.9% contraction in the services sector, the sharpest monthly drop since April 2023, highlighting vulnerabilities in Brazil's primary growth driver.
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