Brazil's currency slides against the US dollar after protestors storm national congress in show of support for ex-president Jair Bolsonaro

• Brazil's currency fell Monday following an attack on government buildings in the capital Brasilia by supporters of ex-President Jair Bolsonaro.
• Foreign investors "run away from this type of risk," said one analyst.

Brazil's currency dropped against the US dollar on Monday after supporters of former president Jair Bolsonaro stormed government buildings in the capital on Sunday on claims he lost his recent election because of fraud.

At least 1,200 protesters have been detained for questioning, a Brazilian civil police spokesperson told The New York Times on Monday.

The drop in Brazil's real pushed the dollar up by as much as 1.6% to buy 5.308 reals. The greenback later pared its gain to 0.6%, fetching 5.2582 reals.

In a three-hour riot, protestors in the capital Brasilia ransacked the country's national congress, the presidential palace, and the Supreme Court, Reuters reported. The attack sparked comparisons to the riot at the US Capitol in 2021 led by supporters of Donald Trump who believed he was denied a second term in office because of election fraud.

Brazil's protests "could pose an institutional risk which could endanger capital flows into the country until the political situation calms," said Matthew Ryan, head of market strategy at investment firm Ebury, in a note.

Such risk could drive losses for Brazil's currency and limit gains for the country's stocks, he said. The key Bovespa stock index finished Monday's volatile trading session up by 0.7%.

Brazilian President Luiz Inácio Lula da Silva, who won the top post in October, said protestors who took part in attacking government buildings would be punished. Ahead of the election, Bolsonaro had been stoking rumors of voter fraud.

"We know that foreign investors run away from this type of risk, and now it shouldn't be any different. Brazil already has a negative history of political turmoil, which has severely affected Brazilian assets in the past," said Ryan.

"The USD/BRL parity and interest rates may suffer with the exit of positions in the domestic currency and the collection of more premium by investors to protect themselves from the worsening of the perception for Brazil," he added.

Lula, a leftist, narrowly defeated right-wing Bolsonaro in a run-off vote by a margin of 50.9% to 49.1%. Lula began his second term as Brazil's president earlier this month.

While the dollar was largely stronger against its rivals in 2022, it fell by more than 5% against the Brazilian real. Brazil's relatively high sovereign bond yields compared with those in the US were attractive to investors and Brazilian commodities were in demand after Russia launched war against Ukraine last year.

But Brazil will face a fiscal crunch in 2023, Fitch warned in late October.

Bolsonaro was in Florida when the attacks took place Sunday. News reports on Monday said he was taken to a hospital near Orlando with abdominal pain.