For a second day in a row, Brazil's currency sunk to a record low against the U.S. dollar, as financial markets reacted to the possibility that a leftist presidential candidate will win a first round election victory next month. The Brazilian real traded at 3.77 to the dollar, its lowest level ever. The value of the Brazilian real continued to fall Tuesday , and was trading as low as 3.82 reals against the dollar before recovering slightly. So far this year, the Brazilian currency has lost about 40 percent of its value, in large part because of market fears over the result of the upcoming presidential election.
The presidential candidate of the leftist Workers' Party, Luiz Inacio "Lula" da Silva, has maintained a strong lead throughout the campaign. Polls now show Mr. da Silva close to winning a first round victory in the October 6 election. A candidate needs to win an absolute majority on October 6 to avoid a runoff on October 27.
Political analyst Fabiano Santos pointed out the prospect makes the markets nervous. "The markets, the financial markets, the banking system, surely are not happy with the perspective of Lula winning the election," he said. "Lula is a leftist candidate of a leftist party."
Mr. Santos and other analysts say the the financial community fears Mr. da Silva will not continue the free market reforms of the current government of President Fernando Henrique Cardoso. The market's favored candidate, Jose Serra who was handpicked by President Cardoso, is in second place in the opinion polls, but lags far behind Mr. da Silva.
Mr. da Silva, who has moderated many of his leftist views of the past, says there is nothing he can do or say to calm the markets. He told a Brazilian newspaper he has made what he called the "most serious commitments a candidate can make," referring to his agreement earlier this year to honor the terms of a $30 billion International Monetary Fund loan to Brazil.
For his part, President Cardoso Tuesday blamed speculators for the fall of the currency, saying the decline has no basis in reality to the actual conditions of the Brazilian economy. If the value of the Brazilian real stays at its current rate, it will be worth even less than the Argentine peso, which was sharply devalued at the beginning of the year.