US Tariff Spurs Real Drop, Escalates Brazil Tensions

After former U.S. President Donald Trump announced a 50% tariff on Brazilian imports, the Brazilian real sharply declined, hitting 5.5832 reais per U.S. dollar, while the U.S. dollar remained stable against other major currencies. Trump attributed the tariff to Brazil's prosecution of former President Jair Bolsonaro, prompting Brazilian President Lula da Silva to vow reciprocal tariffs and assert Brazil's sovereignty over judicial matters. Lula rejected U.S. claims of a trade deficit and emphasized that Bolsonaro's trial is exclusively Brazil's concern. Brazil's economic woes—including a widening trade deficit, falling export prices, rising inflation, and shrinking industrial output—have contributed to the real's weakness. Despite escalating tensions and fears of a trade war, markets remained optimistic that tariffs would not broaden further. U.S. Federal Reserve minutes showed policymakers divided on future rate cuts, though most judged inflation as manageable, even amid new tariffs.