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Previewing the Central Bank of Brazil’s BCB) monetary policy meeting, “we expect the BCB to trim the pace of easing to 25bps at the February meeting, acknowledging certain inflation risks, and perhaps a “less bad” economy, but continuing to express frustration with the pace of economic recovery and forward-looking growth risks,” said TD Securities analysts.

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“We continue to be relatively bearish on the real against the USD and also EM generally speaking, and the further yield loss will hamper BRL’s ability to rally, outside of the circumstances of a broad USD decline.”

“Market pricing is now more consistent with our view, after having diverged from our relative dovishness in the past couple of months, given that BRL weakness made some fear that further easing and loss of carry would drive further depreciation. We don’t disagree, but we think the BCB continues to see this as a less important risk for now.”