Societe Generale sees a 65% chance of Lula winning a fourth term with a divided Congress, heightening fiscal and political uncertainty.
The Brazilian real has underperformed in Latin America, posting a 1.7% negative total return this month as election and fiscal risks weigh on investor sentiment. In contrast, the Chilean peso and Mexican peso have gained around 2% over the same period, reflecting a shift in fund allocations toward politically neutral or higher-yielding assets.
USD/BRL is nearing its 200-day moving average at 5.2042, while the Bovespa index has already fallen below its long-term average, hitting a seven-month low of 167k. A sustained break above the 200-day moving average could target 5.34–5.38, signaling further downside pressure on the real.
Analysts cite a 65% probability of President Lula securing a fourth term alongside a divided Congress, a scenario expected to exacerbate fiscal concerns and currency volatility. The outlook remains clouded by political uncertainty ahead of the presidential vote.