The real, Brazil’s currency, fell earlier this week over concern Europe’s debt crisis may slow the global economic recovery. The Brazilian real slid 0.9% to 1.8704 per US dollar from 1.8534 on May 21. The currency has declined 6.7% this year after rising 33% in 2009.
“We’re seeing a lot of declines on top of concerns about Greece and Europe,” said Paulo Petrassi at Leme Investimentos in Florianópolis, the capital of the southern state of Santa Catarina. “Flows will come back to Brazil when you have signs of stability out there, and it doesn’t look like that will happen in the short term.”
Brazilian currency traders are paying the highest premium in developing markets to insure against a tumble in the real after Europe’s debt crisis sparked the biggest monthly retreat since November 2008.
The so-called risk-reversal rate has more than tripled from 2.34 percentage points in February in favor of options to give investors the right to sell the real. In the overnight interest-rate futures market, the yield on contracts due in January fell one basis points, or 0.01 percentage point, to 10.92%.