(Bloomberg) -- Expectations of a more hawkish Federal Reserve and a rally in commodity prices risk putting a premature end to Brazil’s easing cycle, one of the earliest and steepest among major global central banks.

The short-end of the local swap curve was hit by US consumer-price data released Wednesday, with traders now seeing higher odds Brazil stops cutting interest rates in June. Pricing implies a 7 basis-point reduction to the benchmark Selic rate in August, half the 15 basis points seen in the curve just two days ago.

The move comes amid a broad repricing of global rates as the Fed is expected to hold borrrowing costs higher for longer — US swaps currently price in less than two rate cuts by the end of 2024, down from six at the beginning of the year. Pimco has even warned officials could raise rates again. In South Africa, traders now expect borrowing costs to remain on hold, or possibly climb this year.

Read more: Pimco Sees Fed Raising Rates Again If US Inflation Reignites

At its last policy meeting, Brazil’s central bank opened the door to smaller cuts starting in June after having reduced borrowing costs by 300 basis points at a steady pace since August. While local inflation continues to ease, coming in at a lower-than-expected 3.93% in March, officials have to take the Fed’s moves into account to avoid capital flight if the rate differential between the two countries becomes too narrow. 

They also have to contend with a jump in commodities — oil, copper and iron ore have been climbing in recent weeks — which improves Brazil’s terms of trade, but could put pressure on prices.

Moreover, traders are growing increasingly concerned with how easily lawmakers are bypassing country’s recently approved fiscal framework to accommodate extra spending — including Lower House approval to free up 15 billion reais ($2.9 billion) of immediate expenditure. That push further undermines the central bank’s ability to cut rates. 

On Thursday, hedge fund veteran Luis Stuhlberger, whose main fund at Verde Asset Management has delivered outsized returns since its inception, said Brazil’s risk premium is on the rise and that the market “doesn’t have a sense of how much spending has gone up.”

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