Really strong.

Brazil's monetary authority has been hiking interest rates since September of last year. That keeps inflation in check, but higher interest rates also reduce the amount of local currency in circulation, which makes demand for the real increase. According to U.S. financial institution Citibank, the real has become the strongest currency in the world, gaining 10% against the U.S. dollar this year alone. In the past, inflation was a problem in Brazil, and rate hikes are needed to keep consumer prices in check, analysts note.

Brazil must meet its inflation goals, if it means tapping the breaks just a little on is red-hot export sector. Asian demand for Brazilian commodities has pumped billions upon billions of U.S. dollars into the economy--a factor which strengthens the real as well. Brazil is on track to exceed US$100 billion in exports in 2005 even as its goods become incrementally less competitive abroad.

Brazil has not been the only country to see its currency strengthen. European economies are choking on strong currencies against the dollar, too.