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The peso (19.89 vs. dollar) and consumer confidence in the US

The peso closed the week with an appreciation of 0.36% or 7.1 cents, trading around 19.89 pesos per dollar, with the exchange rate touching a maximum of 20.0016 and a minimum of 19.5987 pesos, a level not seen since January 21.

Peso

The market performance was favorable for the Mexican peso during most of the week, particularly from Monday to Wednesday, this was due to three factors:

First factor

The perception of risk with respect to Mexico was reduced after the preliminary results of the federal elections last Sunday, in which the party at the head of the executive branch and allies did not manage to obtain a qualified majority (2/3 of the seats) as a whole. which reduces the likelihood of constitutional reforms being passed over the next three years.

This allowed the exchange rate to approach the minimum level in the year of 19.55 pesos per dollar, which can still be reached during the month.

Second factor

On Wednesday, May inflation was published in Mexico, which stood at an annual rate of 5.89%, above market expectations, with a significant monthly increase of 0.53% in the underlying component of inflation.

Because there are upward risks to inflation, this increases the probability that Banco de México will maintain a cautious stance and leave the interest rate unchanged at 4% over the next few months.

Third factor

The prices of raw materials and in particular oil continued their upward trend. The WTI closed the session with an increase of 1.69%, trading around 70.8 dollars per barrel, touching a new high in the year of 71.24 dollars.

Inflation and consumption

Towards the end of the week, the Mexican peso cut most of its gains, hitting the maximum of 20,0016 pesos per dollar during Friday’s session.

This was the consequence of two factors:

First

The market reacted belatedly to the release in the United States of May inflation, which stood at 5.0% annually, exceeding market expectations.

It should be noted that US inflation was at its highest level since August 2008, while core inflation, which shows the trend of long-term inflation, was at 3.8%, its highest level since June 1992.

This generated speculation during Friday’s session that the Federal Reserve could change its language to a less accommodative one in the next monetary policy announcement on June 16 at 1:00 p.m.

Second

In the United States, the preliminary consumer confidence indicator from the University of Michigan was published for June, reaching 86.4 points, increasing 3.5 points compared to the May reading, as a result of the expectation of a more accelerated economic recovery.

Despite the fact that participants point to inflation as a concern, accumulated savings and the economic reopening as the summer season begins, allow consumer confidence to increase.

This helped the dollar weighted index to rise 0.52% in Friday’s session.

Labor market and the Mexican peso

Regarding economic indicators in Mexico, at the end of the week the IMSS announced the creation of 38,961 jobs during May, being the highest job creation for the same month since May 2014, when 47,853 were created. It is important to note the following considerations:

  1. Despite the fact that the level of formal employment spun three months above 20 million, a complete recovery has not yet been achieved, because in February 2020, prior to the pandemic, a total of 20 million 613 thousand 536 was observed posts.
  2. With the formal job creation in May, there are still 504 thousand 92 jobs to reach the pre-pandemic level (February 2020).
  3. The pace of recovery has slowed down as the job creation data for May is the lowest in the year.
  4. It is important to note that the recovery in employment has not occurred at the same salary levels. In the ENOE, which shows the universe of all employment in Mexico, it is shown that part of the recovery has occurred in underemployment, which affects the income of Mexican families.

The incomplete recovery of employment is not unique to Mexico, since in the US, despite rapid GDP growth, a high percentage of jobs are missing to recover.

On the week, the euro hit a low of 1.2093 and a high of $ 1.2218 per euro. For its part, the euro peso touched a minimum of 23.8885 and a maximum of 24.2978 pesos per euro.

At the closing, the interbank quotes for sale stood at 19.8870 pesos per dollar, 1.4106 dollars per pound and 1.2105 dollars per euro.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE

 

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