The Mexican peso falls against the dollar to 20.58 units

The peso starts the session with a moderate appreciation of 0.49% or 10.1 cents, trading around 20.58 pesos per dollar, with the exchange rate trading between a minimum of 20.5499 and a maximum of 20.7339 pesos.

The movements of the exchange rate during the overnight have been in line with the movements of the weighted index of the dollar, which shows a weakening of 0.15% against its main crosses.

This morning there is a greater appetite for risk, mainly in the capital markets, after losses were observed for most of the week.

This is partly due to an upward correction, but also because the Federal Reserve said yesterday that it will allow US banks to resume increases in dividend payments from the end of June after conducting a round of stress tests in the coming months. .

There is also some optimism about Joe Biden’s commitment to administer 200 million vaccines in the United States by the end of April, which should accelerate the full reopening process and economic recovery.

The peso

In the capital market, the main European indices advance on average 0.55%, but continue to accumulate losses close to 0.60% in the week.

While, in the United States, the Dow Jones could open with gains close to 0.40% and the S&P 500 with gains of 0.25%, according to the futures market.

However, the optimism of the markets is moderate, as daily cases of coronavirus continue to increase slowly and could cause a slowdown in economic activity in April.

France extended its confinement to three more regions, given the continuous increase in Covid19 cases.

In addition, the French health system is facing pressure, as intensive care units register a hospital occupancy of 93.1 percent.

Chile also imposed a new confinement in the city of Santiago and some surrounding districts, despite the fact that it is the Latin American country with the highest vaccination rate as of March 25 of 49.19 inhabitants per 100.

Oil and interest rates

There are two additional factors that could contribute to the appreciation of the Mexican peso during the session:

First factor

Oil prices have regained their upward trend, following news that the Suez Canal will likely remain blocked until Wednesday of the following week.

The price of WTI starts the session with an increase of 3.19%, trading at 60.42 dollars per barrel.

In the foreign exchange market, several of the currencies that are gaining ground are from oil-producing countries, such as the Norwegian krone, which advanced 0.65%, being the most appreciated, the Canadian dollar with 0.37% and the Russian ruble with 0.34%.

Second factor

The expectation that Banco de México will keep the interest rate unchanged at 4% for the rest of the year, after the unanimous decision not to modify the target rate in yesterday’s announcement.

United States Economic Indicators

Today the Personal Income and Consumption report for February was published. Personal income decreased at a monthly rate of 7.1%, after showing an increase of 10.1% in January, the highest since April 2020, due to the distribution of direct checks.

At an annual rate, personal income shows an increase of 4.3 percent.

The savings rate stood at 13.6% in February, remaining well above the pre-pandemic level (February 2020) of 8.3 percent.

Personal consumption contracted at a monthly rate of 1.0%, after having increased 3.4% during January.

During February, consumption was affected by frost in Texas, after several regions of the southern United States were without electricity for several days.

In annual terms, personal consumption shows a contraction of 0.6%, returning to negative territory after a slight annual increase of 0.4 percent had been observed in January.

United States Economic Indicators

Today the Personal Income and Consumption report for February was published. Personal income decreased at a monthly rate of 7.1%, after showing an increase of 10.1% in January, the highest since April 2020, due to the distribution of direct checks.

At an annual rate, personal income shows an increase of 4.3 percent.

The savings rate stood at 13.6% in February, remaining well above the pre-pandemic level (February 2020) of 8.3 percent.

Personal consumption contracted at a monthly rate of 1.0%, after having increased 3.4% during January.

During February, consumption was affected by frost in Texas, after several regions of the southern United States were without electricity for several days.

In annual terms, personal consumption shows a contraction of 0.6%, returning to negative territory after a slight annual increase of 0.4 percent had been observed in January.

Economic Indicators of Mexico

In Mexico, the February Trade Balance showed a surplus of $ 2.681 billion, after the prior month’s deficit of $ 1.23 billion, according to original figures.

It should be remembered that, in January, non-oil exports are usually weak.

Total exports fell at a monthly rate of 3.65%, spinning two months of setbacks according to series adjusted for seasonality.

However, in annual terms they grew 0.22%, accumulating five consecutive months in positive territory.

In the interior, the monthly decline in manufacturing exports of 4.06% stands out, the highest since May, so that at the annual rate they presented a contraction of 1.09 percent.

Manufacturing exports were dragged down by the weak performance of automotive exports, as they fell at a monthly rate of 13.11% (-8.81% annually).

In particular, the production of the automotive sector was limited in the month by the global shortage of semiconductors and the problems in the supply of electricity and gas as a result of the winter storm.

External purchases and the peso

Total imports registered a monthly drop of 2.34%, while at the annual rate they fell 0.53%, after two months of increases.

In the interior, oil imports showed a slight monthly decline of 0.22%, impacted by the Texas governor’s ban on exporting natural gas between February 17 and 21.

On the other hand, imports of consumer and intermediate-use goods decreased 2.52% and 3.08% compared to January, respectively on a monthly basis, which could be a reflection of the distortions caused by the Chinese New Year, as well as the shortage of microchips for the case of imports of intermediate goods.

Only imports of capital goods surprised to the upside by growing at a monthly rate of 5.01%, which in annual terms registered an increase of 0.78%, the first after 24 consecutive months of falls.

During the session, the exchange rate is expected to trade between 20.42 and 20.72 pesos per dollar. The euro starts the session with an appreciation of 0.17%, trading at 1.1784 dollars per euro, while the pound gains 0.38% and is trading at 1.3786 dollars per pound.

Money market and debt

In the United States, the yield on the 10-year Treasury bonds increased by 2.5 basis points, at a rate of 1.66%, while in Mexico the yield on the 10-year M bonds remained unchanged, at 6.92 percent.

Derivatives market and the peso

To hedge against a depreciation of the peso beyond 21 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.85% and represents the right but not the obligation to buy dollars in the aforementioned level.

On the other hand, the interbank forward for sale is at 20.6417 at 1 month, 21.0105 at 6 months and 21.4980 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE