Brazil’s currency has continued its dramatic slide in value after it fell to an all-time low against the dollar on Tuesday, as traders take fright at growing political chaos in the Latin America’s largest economy.

A brief rally at Wednesday’s open quickly fizzled out with the real resuming its plunge, touching R$4.09 to the dollar by mid-morning, its lowest level since the currency was introduced in 1994.

The real has lost over 70 per cent of its value in the last 12 months in response to interlocking political and economic crises gripping the country. Weakened by moves to impeach her over corruption allegations president Dilma Rousseff has struggled to win the necessary political support for an austerity programme to restore the public finances to health.

She has proposed the reintroduction of an unpopular financial transaction tax to help plug a fiscal deficit at a time when many in the country’s congress are mobilising behind a vote on impeachment, a move with widespread public support.

As the currency was falling legislators were debating whether to overturn presidential vetoes on popular spending hikes it had voted through in recent months and which the finance minister Joaquim Levy has criticised.

In a debate that ran into the early hours of Wednesday several vetoes were maintained providing the president a measure of relief. But the veto of a large - and fiscally damaging – pay increase for court officials is still to be debated.

The president’s ability to sway the congress is being hampered by the fallout from the investigation into corruption at state-controlled oil giant Petrobras. On Tuesday a supreme court judge authorised an investigation into whether the president’s cabinet chief Aloizio Mercadante benefitted from the scheme.

A divisive figure who has lost support even within the ruling Workers Party, Mr Mercadante is one of the president’s key interlocutors in the fraught negotiations with congress but he now faces a legal battle to avoid being added to the growing number of politicians already charged in the affair.

As the sense of political chaos intensified former central bank director Ilan Goldfajn warned the country was now facing another “lost decade” like the one it suffered in the 1980s.