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The 4 factors that strengthened the US dollar

The peso closed the week with little change against the dollar compared to the end of the previous week, showing a minimum depreciation of 0.09% and trading around 21.16 pesos per dollar.

In the foreign exchange market, most currencies closed with a depreciation, with the dollar-weighted index showing a weekly advance of 0.56 percent.

Despite the fact that during the week the exchange rate closed with few changes, during the first four sessions upward pressures were observed, reaching a maximum of 21.5281 pesos per dollar.

American dollar

During the week, the factors that caused a general strengthening of the dollar were the following:

First factor

The rate of contagion of coronavirus continues to rise, reaching historic levels in several countries in Europe, including major economies such as Germany, France and the United Kingdom. This has led to new restrictions on mobility, including curfews in major French cities and reductions in hours of operation for businesses in Germany. Globally, the daily rate of new infections is close to 400 thousand, reaching new all-time highs during the week. The emergence of new cases and contingency measures in Europe imply a probable stagnation of the economic recovery. In the coming weeks, the daily rate of infections in the United States is likely to reach a new high, raising the perception of risk in global financial markets.

Second factor

It is unlikely that the United States will pass a new fiscal stimulus package before the November 3 election. Since the main determinant of the delay in the approval of the stimuli is political, a key risk for financial markets would be an undefined electoral result, where several weeks have to pass before a winner is formally declared to the presidency. This scenario would imply a delay in the approval of new stimuli and could generate additional upward pressure for the exchange rate during November.

Third factor

Unfavorable indicators for the United States were published in Thursday’s session. Initial applications for unemployment support amounted to 898 thousand units in the week ended October 10, above the 825 thousand expected by the market and its highest reading since the third week of August. This implies a stagnation in the recovery of the US labor market that could translate into a slower economic recovery. It should be remembered that Mexico’s economic recovery depends mainly on exports to the United States.

Latin America

On the other hand, in Friday’s session, the rating agency Standard & Poor’s pointed out that some countries could receive warnings or see downward adjustments in their credit ratings in the coming months, due to the resurgence in the number of coronavirus cases.

The rating agency sees pressure on the ratings of Mexico, Brazil and Colombia.

Currently Standard & Poor’s places Mexico’s rating at BBB, so it would need to go down two notches to reach a speculative grade. For its part, the rating agency Fitch Ratings places the sovereign debt rating at BBB-, one notch above the speculative grade.

Indicators of BanxicoEl peso cerró la semana con pocos cambios frente al dólar con respecto al cierre de la semana previa, mostrando una depreciación mínima de 0.09% y cotizando alrededor de 21.16 pesos por dólar.

The Standard & Poor’s communication did not have an observable effect on the exchange rate, but changes to the credit rating would create upward pressure on the exchange rate.

In the week between October 7 and 13, the net speculative positions awaiting an appreciation of the peso in the Chicago futures market, showed a moderate increase of 5.32% or 1,136 contracts, each of 500 thousand pesos .

The peso

During the week, the exchange rate touched a minimum of 21.0882 and a maximum of 21.5281 pesos per dollar, the euro touched a minimum of 1.1689 and a maximum of 1.1827 dollars per euro. Finally, the euro peso touched a minimum of 24.7116 and a maximum of 25.2081 pesos per euro.

At the close, the interbank quotes for sale were located at 21.1570 pesos per dollar, 1.2918 dollars per pound and 1.1714 dollars per euro.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE

 

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