The USD/BRL exchange rate moved sideways on Tuesday after the US and Brazil published hotter-than-expected February inflation numbers. The pair was trading at 4.9675, where it has been in the past few days.

The US and Brazil published strong inflation figures, putting pressure on the respective central banks.

In Brazil, data from the country’s statistics agency revealed that the headline CPI rose from 0.42% in January to 0.83% in February. That increase was higher than the median estimate of 0.78%.

The country’s inflation rose by 4.50% on a YoY basis, also higher than the expected 4.4%. The stubbornly high inflation will likely put more pressure on the Brazil Central Bank, which has continued cutting rates.

The bank delivered another 0.50% rate cut in February to 11.25%, in line with expectations. It also hinted that it would continue cutting rates this year, with analysts expecting two more 50 basis point cuts this year. 

Meanwhile, in the United States, the Bureau of Labor Statistics (BLS) said that the country’s inflation was hotter than expected. The headline CPI rose by 3.2% in February from the previous month’s 3.1%. It rose from 0.3% in January to 0.4% on a MoM basis.

Core inflation, which excludes the volatile food and energy prices, rose by 0.4% MoM and 3.8% on a YoY basis. Again, these numbers were higher than the expected 0.3% and 3.7%, respectively. 

This report implied that the US inflation, especially in the services segment, has remained stubbornly high in February. It also means that it will take a longer period before it moves back to the 2% target point.

Most importantly, the stubbornly high inflation will likely force the Fed to wait longer before cutting interest rates. 

USD/BRL chart by TradingView

The USD/BRL pair has remained in a tight range in the past few months. It has risen marginally from the YTD low of 4.80 to almost 5. The pair has also moved slightly above the 50-day Exponential Moving Average (EMA).

Most importantly, it has formed a rising wedge pattern, which is a popular bearish sign. In most cases, this is one of the most popular bearish signs. The pair’s volatility, as measured by the Average True Range (ATR) has continued falling.

Therefore, the outlook for the USD to BRL pair is bearish, with the next point to watch being at 4.80, its lowest point this year.

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