USD/BRL holds ground near 5.60 after rising sharply due to Trump's 50% tariff on Brazil

• USD/BRL appreciated as Trump announced a 50% tariff on Brazilian imports, up from the previous 10% rate.
• President Trump defended his decision by accusing Brazil of engaging in unfair trade practices.
• The recent FOMC Meeting Minutes suggested uncertainty surrounding the Fed's policy outlook.

USD/BRL remains stronger after registering approximately 2.5% gains in the previous session, trading around 5.60 during the European hours on Thursday. The pair appreciated as the Brazilian Real dropped sharply after US President Donald Trump announced a 50% tariff on Brazilian imports, effective August 1, up from the previous 10% rate imposed in April.

President Trump justified his move by accusing Brazil of engaging in unfair trade practices and, notably, as retaliation for the ongoing trial of Brazil's former President Jair Bolsonaro, who faces serious charges related to efforts to overturn the 2022 election results. In response, Brazilian President Luiz Inácio Lula da Silva vowed to retaliate by invoking its Law of Economic Reciprocity.

Additionally, Brazil is facing declining prices for major exports such as crude Oil and iron ore, leading to reduced foreign currency inflows. Meanwhile, a surprise widening of the June trade deficit and an unexpected drop in industrial production have further dampened prospects for a near-term economic recovery.

The upside of the USD/BRL could be restrained as the US Dollar (USD) faces challenges due to rising trade concerns and uncertainty surrounding the Federal Reserve's (Fed) policy outlook. The latest Federal Open Market Committee (FOMC) Minutes from the June 17-18 meeting, released on Wednesday, indicated ample uncertainty and a divide within the Fed policymakers on how tariffs will impact inflation going forward.