November 14, 2016 / 12:17 PM / 2 years ago

Brazil real weakens for fourth day as Trump concern boosts U.S. yields

SAO PAULO, Nov 14 (Reuters) - The Brazilian real slumped for a fourth straight day on Thursday, as concern over U.S. President-elect Donald Trump and higher U.S. yields drove the central bank to intervene.

Rates paid on U.S. Treasury debt surged on fears that Trump’s pledges of heavy infrastructure spending and tax cuts could boost inflation and force the Federal Reserve to raise U.S. rates by more than expected.

The real weakened as much as 2.4 percent to 3.47 to the dollar, extending losses to 8.9 percent in four days.

Low trading volumes before a local holiday magnified currency moves, with the real weakening more than the Mexican peso even after Brazil’s central bank took strong action to curb volatility.

The central bank will sell on Monday as much as $750 million worth of traditional currency swaps, which function like selling dollars to investors for future delivery, to roll over contracts maturing next month.

HSBC analysts led by André de Silva said they expect Brazilian markets to calm down sooner rather than later as traders focus on prospects of structural reform. “Indeed, this may come as soon as 30 November with another rate cut,” they wrote in a report.

Rates paid on Brazilian interest rate futures <0#2DIJ:> rose sharply, but remained consistent with expectations of a 25 basis point cut in this month’s central bank policy meeting, according to Reuters calculations.

Traders also cited concerns over an investigation in Brazil’s top electoral court over potentially illegal donations to ousted President Dilma Rousseff’s 2014 campaign.

Some fear the court could decide to annul Rousseff’s entire ticket, removing current President Michel Temer, who ran as her vice president, from office. (Reporting by Bruno Federowski; Editing by Larry King)

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