The Brazilian real rose to 5.17 per USD from the three-month low of 5.22 on July 2nd as weak labor data from the US threatened to stretch the rate differential between the Fed and the BCB. The interest rate differential remains supportive for the real, with Brazil's benchmark Selic rate at 14.25% compared with the US policy range of 3.50%-3.75%.
The wide yield gap continued to attract foreign inflows and support the Brazilian currency.
Domestic gross public debt rose above forecasts in May, while primary deficit was wider than expected.
The deterioration in fiscal accounts reinforced expectations of higher-for-longer borrowing costs and persistent upward pressure on interest rates.
In addition, Brazil’s annual inflation rose past 4.8% in the first half of June, above the central bank's upper target band of 4.5%