The Brazilian real strengthened slightly to around 5.08 per US dollar in September, reaching a more than one-month high following lower-than-expected inflation data. Brazil’s annual inflation rate eased to 4.22% in August 2026 from 4.44% in July, slightly below forecasts of 4.27% and moving further within the central bank’s target range of 1.50%-4.50%. With the Selic elevated, upward pressure on real returns on bonds is increasing the attractiveness of fixed-income market to foreign investors seeking yield. Also, lower inflation reduces the country’s risk premium, boosting foreign investor confidence. However, the data raised bets that the BCB will cut the Selic by at next week’s Copom meeting. This would narrow the rate differential, as bets on a Fed rate hike remain high following US CPI coming largely in line with forecasts. Meanwhile, gains by Flavio Bolsonaro in recent presidential election polls have supported the real, as markets view Bolsonaro as fiscally restrictive.