Brazilian Real Rebounds 2% After Sharp Drop Following Lula Victory and Rising Tensions With Washington

Key Facts

Brazilian markets recovered on October 27 after plunging in the previous session following President Luiz Inácio Lula da Silva’s re-election. The real rose nearly 2% to around 5.31 per dollar, after falling more than 11% on October 26, while the Bovespa index gained 1% after closing down 13.9% on Monday. The rebound followed a sell-off after the runoff result was announced, while political tensions increased after U.S. President Donald Trump questioned the election’s integrity. Trump said on October 26 that the vote “looked like another rigged election,” without providing evidence for his allegation. He added: “Elections must be beyond dispute, and this looked very bad to me.”

The market move reflected a rapid reversal in the performance of Brazilian assets during the election period. Through Friday, October 23, stocks had closed about 7% above their levels before the first round, while the real was about 5% stronger against the dollar. But Bovespa futures plunged nearly 15% after Lula’s victory, and the benchmark index fell 10% from its previous close, prompting the exchange to halt trading for 30 minutes on October 26. The following day, the real recovered some of its losses and the index rose, but the sharp decline in the previous session remained the immediate backdrop to market volatility. Finance Minister Dario Durigan said the market reaction the previous day was more closely tied to investor positioning in recent days, adding: “Yesterday’s reaction was more closely linked to the positions the market had taken in recent days.”

The court announced that the vote count was complete, with Lula ahead by about 4.4 million votes. Bolsonaro refused to concede defeat and asked for the results to be annulled, after voting was extended by two hours at some polling stations. Justice Cristiano Zanin had decided to keep the stations open for two additional hours following requests from both candidates’ campaigns because of transportation problems and rain. The head of the electoral court said the extension of voting did not affect the result.

Bolsonaro had led by more than 2.2 million votes in the first round of the election before the result reversed in the runoff. The Associated Press said it was the first time since the end of military rule in 1985 that the candidate who finished second in the first round had won the presidency. A total of 128.2 million voters out of more than 158 million eligible voters took part in the second round, and the abstention rate was about 19.2%, down from 21.08% in the first round. These figures place the runoff result in a broader context than the close contest, as voter turnout and voting patterns determined the outcome in Lula’s favor. He is due to begin his fourth nonconsecutive term on January 5, 2027.

The dispute extended to Washington, where Steve Bannon called on the U.S. president and secretary of state to sever diplomatic ties with Brazil and halt trade with it, describing the government as an “illegitimate Marxist and globalist government.” This remains a political call by Bannon, not an announcement of a U.S. government decision to cut ties or trade. The trade dispute between the two countries is also an issue facing Brazil’s next president. The Brazilian government has said the new U.S. measures would affect 23.1% of the country’s exports, with 16.5% of exports facing combined tariffs of 37.5%. Before the runoff, experts said a Lula victory would dispel bets on reforms to improve public finances and bolster growth prospects, and that the appointment of a finance minister would be an important signal of the administration’s commitment to fiscal discipline.

Attention after the election is turning to labor data and a monetary policy meeting. Brazil’s statistics institute has scheduled the release of its monthly continuous labor force survey for September data on October 30, 2026. The Brazilian central bank’s Monetary Policy Committee will also meet on November 3 and 4, with the minutes due to be published on November 10. These dates follow sharp swings in the currency and stocks, as investors await signals on fiscal policy from the new administration. Lula is expected to begin his new term on January 5, 2027.