On June 16, the First Panel of the STF unanimously convicted former federal deputy Eduardo Bolsonaro to four years and two months in a semi-open prison regime for coercion in the course of legal proceedings. The court found he had lobbied in the United States to interfere in the trial of his father — the former president currently serving a 27-year sentence for the attempted coup of January 2023. Eduardo was also barred from running for office for eight years and is set to lose his position as a Federal Police clerk. The conviction came against a broader backdrop of criticism over Eduardo's conduct abroad: he was accused of actively encouraging the tariffs imposed by the Trump administration on Brazilian goods during his visits to Washington, and had publicly attacked Brazil's Pix instant payment system — in what critics described as a deliberate attempt to undermine confidence in the country's financial infrastructure.
The conviction did not occur in isolation. Jair Bolsonaro has been in preventive detention since November 2025, when the STF unanimously upheld an arrest warrant issued by Justice Alexandre de Moraes. A subsequent dosimetry law signed in May 2026 opened a theoretical path to sentence reduction — though far short of the amnesty the Bolsonaro camp had demanded — and the measure did little to stabilize the political right.
The right-wing succession crisis remains the defining storyline of the pre-campaign season. Tarcísio de Freitas, the governor of São Paulo who had long been the market's preferred right-wing candidate, privately signaled to allies he will pursue re-election as governor instead. His exit effectively cleared the field for Flávio Bolsonaro (PL), officially endorsed by his imprisoned father in December 2025. Before the field consolidated around Flávio, the possibility of Michelle Bolsonaro leading the ticket circulated for several weeks within the Bolsonarista camp — a scenario that was informally floated with allies but failed to gain traction amid resistance inside the PL itself and the former president's stated preference for his son.
The problem is that Flávio's candidacy has been rocked by scandal. In May, an audio recording published by The Intercept Brasil alleged the senator had solicited R$ 134 million from Daniel Vorcaro — a banker arrested for fraud and money laundering — to finance a biographical film about his father. The fallout was immediate and measurable. As previously reported, Flávio's odds on Polymarket plunged 14 percentage points in 24 hours, from 43% to 28.4%, triggering a 2% single-day depreciation in the real and a cumulative Ibovespa decline of more than 3%. The EWZ index, which mirrors Brazilian equities in dollar terms on the NYSE, fell 6.03% over the same period.
The June 18 Datafolha poll showed Lula leading first-round voting intentions with 41% against Flávio's 31%, with a second-round simulation producing a 47%–43% result in Lula's favour. The president's approval ratings tell an ambiguous story depending on the institute: a BTG/Nexus poll from mid-June placed approval at 48% — above disapproval for the first time in that institute's series — while Alfa Inteligência recorded 56% disapproval and a Datafolha survey from April showed 51% disapproval. The divergence reflects genuine polarisation as much as methodological differences.
The Real: Caught Between Carry and Caution
The Brazilian real has also had an unusual year. Against the euro, it is the standout performer: up roughly 9.79% year-to-date as of June 22, with the BRL/EUR rate at approximately €0.1693. In part, this reflects Brazil's persistently high interest rates attracting carry-trade flows from European investors operating in a lower-yield environment. Over the past decade, however, the real has lost roughly 42% of its value against the single currency, a reminder that structural currency weakness remains the baseline.
Against the dollar, the picture is less flattering. The real traded near R$ 5.19 per dollar in mid-June — close to its weakest level in two months — as broad dollar strength combined with Middle East tensions and proposed U.S. tariffs on Brazilian goods compressed appetite for emerging-market exposure. Earlier in June, the currency had weakened to R$ 5.06 per dollar as U.S. authorities cited concerns that Brazil had not done enough to prevent imports produced with forced labour. The Banco Central do Brasil's official rate stood at R$ 5.1441 per dollar as of June 19.
BBVA Research's June 2026 Brazil Economic Outlook projected the real is likely to face further pressure as the October election approaches and investor uncertainty grows, though the bank noted Brazil's relatively high interest rates should continue to provide a degree of currency support if fiscal imbalances are contained. The 2026 nominal deficit is running near 8.3% of GDP, with debt service approaching R$ 1 trillion and a R$ 700 billion pre-election stimulus package in the pipeline — a fiscal stance that the central bank must partially offset by keeping rates elevated, keeping the carry trade attractive even as the growth cost accumulates.
Inflation expectations in the Focus bulletin have risen for 11 consecutive weeks, driven largely by fuel prices tied to the Middle East conflict. As of late May, the market consensus for full-year 2026 IPCA stood at 5.04% — above the central bank's 3.0% target. Copom itself revised its 2026 inflation forecast up to 4.6% at its April meeting.
Brazil as the New Neutral Ground
The most geopolitically charged transaction of the year occurred in late April, when USA Rare Earth announced a definitive agreement to acquire Serra Verde Group — owner of the Pela Ema mine in Goiás, the only scaled producer of all four magnetic rare earth elements outside Asia — for approximately $2.8 billion, structured as $2.5 billion in stock and $300 million in cash. The deal creates what the company describes as a fully integrated platform for rare earth supply security, with Phase 2 beginning in 2028 and feedstock flowing to processing facilities in the United States and Europe.
The deal's political aftershocks were as significant as its financial terms. On May 7, President Lula met Donald Trump at the White House — their first official bilateral meeting — in a session focused on trade, tariffs, and foreign direct investment. As previously reported, Brazil explicitly refused to exclude Chinese capital from its minerals sector, defending a policy of open investment. Chinese state media praised the stance publicly. Beijing followed the diplomatic signal with economic substance: Brazil was the top global destination for Chinese foreign direct investment in 2025, with Chinese firms injecting over $6 billion, predominantly in energy, mining, and electric mobility.
The Brazil-China relationship then took a further step on May 11, when both governments announced a reciprocal visa-free policy. The exemption — valid until December 31, 2026 — covers tourism, business, cultural activities, and family visits for stays of up to 30 days. It formalises what has already become a deep economic relationship: BYD is operating a factory in Bahia, Air China launched a direct São Paulo–Beijing route in 2025, and Chinese tourists surged 35% year-on-year in 2025.
The picture that emerges is one of deliberate strategic neutrality. Brazil is selling its minerals to American buyers, welcoming Chinese factories, deepening EU trade ties through Mercosur, and using its leverage in all three directions simultaneously. Whether that triangulation is sustainable through an election year — and which candidate inherits the posture — remains the central question for foreign investors.
The View from Here
Brazil in June 2026 is running two simultaneous narratives. In one, a country is convulsing through political trials, electoral uncertainty, a fragmented opposition, and a central bank fighting a fiscal expansion it did not authorise. The real wobbles with every audio leak. The Ibovespa retreats when prediction markets move. The cost of capital remains among the highest in the world.
In the other narrative, a country with the Western Hemisphere's largest rare earth mine, a state oil company building its African footprint, a domestic LLM beating Chinese benchmarks, fighter jets being assembled at a São Paulo plant, and a trade corridor just opened to 700 million European consumers is positioning for a decade of relevance that would have seemed improbable in 2022.
Both narratives are true. The question for investors, and for the next president, is which one gets the institutional framework it needs to prevail.
