By Paul Kiernan

RIO DE JANEIRO--The Brazilian real has surged in recent weeks as end-of-year recesses in the courts and legislature are expected to allow the country's delicate political situation to remain in balance until January.

Brazil's currency recently traded at 3.2655 reais per dollar, according to Tullett Prebon via FactSet, an appreciation of more than 6% from early December. No major foreign currency has strengthened more.

The outlook for Brazil is hardly improving, however.

Latin America's largest economy is in the throes of its worst recession in more than a century; a growing number of economists are calling it an outright depression. Most are forecasting a prolonged period of stagnation, rather than recovery, starting next year as the country's fractious Congress dawdles over urgently needed economic reforms.

Meanwhile, political analysts say the odds are growing that President Michel Temer, who took office only this year following the impeachment of his predecessor, Dilma Rousseff, could be pushed out amid a corruption probe. Plea bargaining by employees of construction giant Odebrecht SA is widely expected to reveal incriminating evidence against large swaths of the political establishment in coming months, deepening the turmoil.

Traders say the good news, for now, is that the near-daily headlines about the crisis have subsided as prosecutors, judges and legislators take off for holidays. The federal court in Curitiba, Brazil, where the Car Wash corruption case is being tried will be on recess from Dec. 20 to Jan. 20, while Congress is on holiday until February.

The relative peace has eased investors' jitters and allowed Mr. Temer's government to take the spotlight in announcing economic measures it intends to propose next year, such as a minor labor reform he outlined Thursday.

"These things don't resolve our economic problems, obviously, but they may bring a bit of enthusiasm to the market," said Reginaldo Galhardo, director of the currency desk at São Paulo's Treviso brokerage.

Write to Paul Kiernan at paul.kiernan@wsj.com

(END) Dow Jones Newswires

December 23, 2016 11:45 ET (16:45 GMT)

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