Exchange rate R$/US$ (end of the year)3,874,085,195,575,32
Exchange rate R$/€ (end of the year)4,434,536,386,315,18
Exchange rate US$/€ (end of the year)1,151,111,231,130,97

(*) up to 15/10/2022

For those who invest abroad, the relative value of the currencies is of fundamental importance.

The table below clearly shows the “dramatic” evolution of the EBITDA of an imaginary foreign company operating in Brazil.

A company with a balance sheet in dollars has seen the value of its Ebitda erode (with the same economic performance) by 27.3% from 2018 to 2022; a company with a balance sheet in Euro saw it decrease “only” by 14.5%.

If we consider the 2022 vs 2021 performance, however, the company with a balance sheet in dollars has seen its EBITDA increase by 4.7%; the one with the balance sheet in Euro, on the other hand, saw it “take off” by 21.8% (again with the same turnover in local currency, the real).

 In reais (R$)In dollars (US$)In Euro (€)
Ebitda 2018        1.000.000           258.398          225.734
Ebitda 2019        1.000.000           245.098          220.751
Ebitda 2020        1.000.000           192.678          156.740
Ebitda 2021        1.000.000           179.533          158.479
Ebitda 2022 (*)        1.000.000           187.970          193.050

So, an European entrepreneur who invested in Brazil at the beginning of 2021 earned a 21.8% extra currency bonus; for an American one, the bonus was only 4.7%.

These are the effects of the magical world of currencies, the most unpredictable market that exists.

If we consider an investment in Brazilian Treasuries, the gains of foreign investors between 2021 and 2022 would be even more impressive, given that yields to date exceed 10% per annum, when in the US and Europe – despite recent increases in interest rates – vary between 3 and 5%.

A fantastic 2022 for real

From the beginning of January to October 15, 2022, the real appreciated by 6% against the dollar.

Among the currencies of the world’s major economies, only the Russian ruble performed better in 2022, appreciating 18.7% against the dollar.

While the real strengthened against the dollar, the euro lost strength: this explains the exceptional performance of the real against the euro: an appreciation of 23.6%.

What happened in 2022?

At the beginning of 2022 the dollar was quoted around 5.60 reais, not far from the all-time high of 5.86 (explosion of the coronavirus pandemic). At that time the Brazilian currency was among the most depreciated in the world against the dollar (-30% compared to the pre-pandemic price)

– Also at the beginning of 2022, the euro was quoted at 1.13 dollars.

– With increasing inflation, Banco Central progressively increased the discount rate (SELIC) already in mid-2021, anticipating the US central bank (FED) and the European one (ECB). At the beginning of 2022, the SELIC was 10.75%, a very attractive rate for speculative capital.

In January 2022, the flow of foreign capital to Brazil increased significantly, favoring the appreciation of the real (+ 5%). In addition to attractive interest rates, the increase in demand for commodities has led to the entry of hard currency.

– With the invasion of Ukraine by Russia, the euro began a process of devaluation against the dollar; in the same period the real continued to appreciate against the dollar (another + 5%)

– On April 4, 2022, the real reached its highest price on the dollar in recent years: 4.61. On that same day, 5.06 reais were enough to buy one euro.

In June, with the sharp rise in interest rates in the US, the real lost strength, reaching 5.50 in mid-July, the same value as the euro.

In the following months, the real – thanks to the improvement in the economy – began to appreciate moderately, especially against the euro after it fell below par with the dollar.

What to expect in the coming months?

As always, it must be borne in mind that the foreign exchange market is very volatile and that its trend is not very predictable.

Whatever the outcome of the second round of the presidential elections at the end of October 2022, the marked improvement in the Brazilian economy and falling inflation could cause a further strengthening of the real. Furthermore, interest rates (above 10% per annum) make Brazilian government bonds very attractive, even if the spread with US bonds tends to decrease.

An important variable concerns the demand for commodities worldwide: if the Chinese economy were to start a new cycle of sustained growth (also thanks to the exit from the restrictions imposed by the lockdown), we could find ourselves facing a new boom in commodities, which it would further improve the Brazilian trade balance.