Forex Flash: Market likely to react with disappointment to BCB rate hike by 25bp to 7.50% - TD Securities

FXstreet.com (Barcelona) - The Brazilian Central Bank decided to lift the Selic rate by 25bp to 7.50% overnight, as expected by consensus, but the market was pricing in more than +40bp ahead of the announcement “and is likely to react with disappointment today”, said TD Securities analyst Marcin Budkiewicz, adding that the minimal size of the hike supports the view that the tightening cycle is going to be much less aggressive than markets expect. “If the Copom delivers another 50bp of tightening in the next two meetings, DI futures due July-13 will have to fall by at least 60bp”, continued the analyst, certain of downside adjustment even accounting for uncertainty. “Extending this conclusion to the whole cycle (likely to be less aggressive than expected), the +180bp still priced in for year-end will also have to fall closer to our 75bp forecast”.