The dollar closed the week at R$ 5.08 in Brazil, up 1.75% over five trading days, according to InfoMoney. In practice, every US$ 100 now costs R$ 508, about R$ 9 more than a week earlier. That filters into airfares, imported electronics and pressure on grocery prices.

Politics is behind the move. According to Valor Econômico, fears that President Lula could overtake Flávio Bolsonaro in the October 25 runoff pushed the cost of protecting against a stronger dollar to its highest level since 2011 in the options market. The gauge, known as a risk reversal, abandoned six-year lows and surged, the newspaper reported.

Understanding it

A risk reversal measures how much extra investors pay for contracts that profit if the dollar rises, compared with those that profit if it falls. When the gauge spikes, the market is paying dearly to insure against a more expensive dollar. It works like insurance: the greater the fear, the higher the premium.

The week's opinion polls helped trigger the alert. Vox Brasil put Lula ahead with 51% of valid votes to 49% for Flávio, while Ipespe/Abrapel showed the senator in front, 51.2% to 48.8%. With the race seen as tight, investors cut risk across their portfolios through the week and futures rates rose, Valor reported.

It was not only politics. G1 and Valor Investe noted that American inflation data also weighed, with the dollar hitting R$ 5.08 on Thursday and the Ibovespa stock index falling sharply. On Friday the currency eased slightly and stocks rose, according to UOL, but the relief did not erase the week's gain.

Next week brings another test for market nerves. According to Valor, the IPCA-15, the preview of official inflation, and the final stretch of the campaign will dominate the agenda. Sunday's televised debate between Lula and Flávio on Band is the first event on investors' radar, one week before the runoff.