Potential ripple effects from Brazilian in-flow tax

Now that Brazil has put up a “stop” sign on hot money flows into the country, what are the ripple effects on the global markets?

Off the bat, it should reduce the need for Brazil to intervene in the forex market to buy dollars on a daily basis. Since most central banks diversify a portion of their intervention proceeds into EUR, it may undermine the single currency a tad.

It should also reduce Brazilian demand for US Treasuries. Brazil holds $138 bln in Treasuries, the sixth largest holder, according to the latest Treasury data.

With S&P futures rallying after the Apple earnings report, Brazil may be swept under the rug in Asia. It could be a big story tomorrow, especially if the market fears other countries will adopt similar measures down the road.

Also underpinning the EUR/USD are comments from the Dutch finmin that the strong EUR reflects the strength of the European economy which crossed the wire a few minutes ago.

EUR/USD continues to run into offers around 1.4970.