The Brazilian real surged 1.8% on Friday to 4.92 per U.S. dollar, the strongest level since June 2022 and a remarkable rebound from the December 2024 low of 6.30 per dollar. The currency rally has now extended to a 22% appreciation versus the dollar over four months, making the real one of the world's best-performing currencies year-to-date.
The latest leg up was driven by two reinforcing catalysts. Petrobras lifted its full-year 2026 production guidance to 2.4 million barrels of oil equivalent per day from a prior 2.2 mboe/d, citing faster-than-expected ramp of the Buzios pre-salt field. The International Monetary Fund's Article IV consultation, also released Friday, praised the Lula administration's commitment to fiscal consolidation and forecast Brazilian primary surplus reaching 1.4% of GDP by 2027.
Bovespa Hits Record High
The Bovespa Index climbed 2.4% to 162,840, a fresh all-time high, with strong gains across financials and commodities. Banco do Brasil rose 4.2%, Itau Unibanco gained 3.8%, Vale advanced 3.1% on iron ore strength, and Petrobras itself climbed 5.4% on the production guidance lift. The benchmark has now gained 18% year-to-date in local currency, or approximately 44% in dollar terms.
Brazilian government bonds also rallied sharply, with the 10-year NTN-F yield falling 32 basis points on the week to 11.84%. The yield is now over 200 basis points below the August 2024 peak of 14.0%, reflecting both improved fiscal credibility and reduced inflation expectations. The Banco Central do Brasil is widely expected to cut its Selic policy rate by 50 basis points to 11.50% at the May 7 Copom meeting.
IMF Lifts Growth Forecast
The IMF lifted its full-year 2026 GDP growth forecast for Brazil to 3.2% from 2.4% previously, citing the favorable terms-of-trade benefit from elevated commodity prices, the strong agricultural harvest, and the gradual recovery in consumer credit following last year's reform of the consigned-credit framework. The Fund's 2027 forecast was lifted to 3.0% from 2.6%.
Lula's approval rating climbed to 56% in the latest Datafolha poll, the highest reading since early 2024, reflecting voter satisfaction with the strengthening currency that has helped reduce imported inflation. JPMorgan's emerging-markets strategist Luis Oganes called Brazil "the cleanest macro story in EM" and lifted his year-end USD/BRL forecast to 4.70 from 5.20. Bears continue to warn that the strong currency could reverse if global commodity prices roll over or if fiscal credibility weakens ahead of the 2026 elections.