Brazil Real Drops 8.1% After Trump Dispute

The Brazilian real fell 8.1 percent against the US dollar on Tuesday, marking the currency's largest one-day decline since 2002. The stock exchange also recorded its steepest one-day drop since 2020 as investors reacted to political uncertainty surrounding the recent presidential runoff.

The market turmoil followed remarks by US President Donald Trump, who said on Monday that the election result "looked like another rigged election." Trump made the comments to reporters without providing specific evidence. He stated, "It looked very bad to me," referring to the way the election was tabulated and the timing of a voting extension.

The dispute centers on a two-hour extension of voting ordered by Brazil's Supreme Court on Sunday. Flávio Bolsonaro, the son of former President Jair Bolsonaro, initially refused to concede defeat. He cited the extension as a reason to seek the annulment of Lula's victory. Bolsonaro lost to Lula by more than 4 million votes.

According to an analysis of electoral records by Pedro Burgos, a professor at Insper, fewer than 35,000 votes were cast during the extra two hours. That figure represents approximately 0.03 percent of the total votes cast. Despite the small number, Trump described the extension as "very strange."

On Monday, Flávio Bolsonaro's Liberal Party moved to accept the outcome. Valdemar Costa Neto, the party leader, signed a statement acknowledging the runoff result. Costa Neto said, "We recognize the presidential election results. But we believe the issues raised need to be properly clarified." Flávio Bolsonaro had not commented publicly since the party issued that statement.

Earlier on Monday, Bolsonaro said he would comply with a federal police order to hand over his passports. The order followed a visit he made to his father, who is currently under house arrest. Bolsonaro denied reports that he was planning to flee the country. Trump did not officially endorse Bolsonaro before the vote, though State Department officials reportedly led a campaign to return the Bolsonaro family to power.

Vice President Geraldo Alckmin defended the integrity of Brazil's electoral system in a television interview with Rede Vanguarda. He called Trump's remarks "totally wrong" and "unfounded." Lula's victory defied polls and global anti-incumbent sentiment. He had trailed Bolsonaro in the first round but secured a majority in the runoff. Pollsters attributed the win to higher-than-expected turnout and an improved social media campaign.

Lula will begin his fourth term with a challenging legislative environment. A surge of conservative voters in the first round pushed the Brazilian legislature further to the right. Congress is now packed with Bolsonaro allies, which may make it difficult to pass his agenda. Analysts do not expect Flávio Bolsonaro to build the same level of anti-democratic movement that his father organized in 2022. Jair Bolsonaro, who lost his own bid in 2022, was later handed a 27-year sentence for plotting a coup.

Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, noted that the initial selloff might moderate as election-related positions are unwound. He said investors will demand convincing fiscal commitments from the new government before rebuilding exposure. Lula campaigned on his track record of cutting poverty and inequality, pointing to record-low unemployment, illiteracy, and deforestation. His fourth mandate was greeted with dismay by investors who had bet on a Bolsonaro win.