How do markets influence the Mexican peso?

Global financial markets begin the session on Wednesday with mixed results, due to the absence of relevant economic indicators and to the fact that there is wide uncertainty about the future of the economic recovery.

The capital markets show moderate losses in Europe, while the futures market announces few changes in the American session, after advisers to Donald Trump proposed to weaken the artificial link between the US dollar and the Hong Kong dollar, with the objective of putting pressure on the Chinese government that has reduced the autonomy of the region.

The effect of the news on the financial markets is moderate, since the proposal is still being analyzed since it could also affect the interests of US companies.

In the commodity markets, the price of oil shows little change, with WTI advancing 0.12% to $ 40.67 a barrel, pending weekly inventory statistics in the United States, which are expected to show an increase.

Markets and powers

Uncertainty about the future of the economic recovery and the trade relationship between the United States and China continues to push up the price of gold, which this morning advanced 0.51% and is trading at $ 1,804.3 per ounce, its highest level since 2011 and accumulating a 18.94% advance in the year. It should be noted that the all-time high for gold stood at $ 1,921.18 per ounce on September 9, 2011.

In the exchange market, a weakening of the US dollar is observed. The weighted index of the dollar lost 0.14% against its main crosses, after advancing 0.39% in the session on Tuesday. The Mexican peso shows an appreciation of 0.69%, trading at 22.70 pesos per dollar, after depreciating about 2.2% in the previous session.

The appreciation of the peso this morning is not indicative of an increased appetite for risk and is only a reflection of the uncertainty in the market.

Currencies and Covid-19

During the session, the attention of the markets could focus again on the growing cases of coronavirus in the United States, since in the last 24 hours the new infections were located again near 60,000, with strong increases in Florida, Arizona and Texas.

In Texas alone, 10,028 new infections were registered during the day on Tuesday, rising at a rate of 5%, above the previous seven-day average rate of 3.9 percent.

For Mexico, the attention will probably focus also on the meeting between the President of the United States, Donald Trump and the President of Mexico, since a bilateral meeting will be held on the agenda at 1:00 p.m. Mexico time, the firm of a joint statement at 2:35 p.m. and a joint press conference at 5:35 p.m.

Indicators of Banxico

Likewise, Pemex announced an exchange of notes with maturities between 2027 and 2060, which add up to around 22.4 billion dollars of debt. Pemex is the most indebted oil company in the world and it was recently reported in the media that it had requested some of its suppliers to extend their payments to the following year.

The exchange rate is expected to trade between 22.53 and 22.81 pesos per dollar. The euro begins the session with an appreciation of 0.11%, trading at $ 1.1286 per euro, while the pound gains 0.04% and is trading at $ 1.2547 per pound.

Money and debt markets

In the United States, the yield on 10-year Treasury bonds increases 1.5 basis points, at a rate of 0.65%, while in Mexico the yield on 10-year M bonds increases by 1.5 basis points, at 5.76 percent.

Derivative markets

To cover a depreciation of the peso beyond 23 pesos per dollar, a call option, with an exercise date within 1 month, has a 2.12% premium and represents the right but not the obligation to buy dollars in the level mentioned above.

On the other hand, the interbank forward for sale is at 22.8167 at 1 month, 23.2317 at 6 months and 23.6946 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE