Fed tightening may mount pressure on BRL

The sharp deterioration in financial conditions in Brazil - given domestic and external sector developments - forced the BCB to come out in support of the BRL with some direct actions and indirect assurances (including the possibility of using the FX reserves). 

The most crucial is the pledge to keep rates high for as long as needed. The BCB President's assurance confirms the end of tightening did not mean the end of upside risk to policy rate forecasts both in the near term and over the medium term. 

The urgency on the BRL front has died down since the U.S. labour data release earlier this month. However, the fiscal numbers and the return of Fed tightening concerns will bring the pressure back, argues Societe Generale.