The peso (19.98 vs. dollar) and retail sales in the United States

The peso starts the session with a depreciation of 0.10% or 2.1 cents, trading around 19.98 pesos per dollar, with the exchange rate touching a minimum of 19.8848 and a maximum of 19.9900 pesos.

In the exchange market, a generalized strengthening of the US dollar is observed, where most of the currencies lose ground, in anticipation of the monetary policy announcement of the Federal Reserve, on Wednesday.

The dollar weighted index begins the session with an increase of 0.17%, advancing for the third consecutive day in which it accumulates an increase of 0.70 percent.

During the session it is likely that the exchange rate will fluctuate based on economic indicators in the United States and expectations about the monetary policy of that country, since no relevant economic information will be published in Mexico.

In the United States, producer inflation for May was published, which stood at an annual rate of 6.6%, exceeding market expectations of 6.2%. Thus, producer inflation spun nine consecutive annual advances and reached its highest level since the series began in 2010.

The mexican peso

It is worth mentioning that part of the annual inflation is due to the low comparison base, since during May 2020 producer inflation fell 1.1% annually.

Also, due to bottlenecks in supply chains, additional inflationary pressures are observed in commodity prices.

In its monthly variation, the PPI advanced 0.8% during May, above the market’s expectation of 0.6 percent.

On the other hand, May retail sales in the United States were published, showing a monthly contraction of 1.3%, while the market expected a monthly decline of 0.7 percent.

The above, as a result of a lower income perception, recalling that direct checks were being distributed during March and April.

At an annual rate, retail sales showed an increase of 28.1%, making twelve consecutive advances.

Airbus vs Boeing

Regarding relevant news, the United States and the European Union reached an agreement to suspend the commercial dispute over government subsidies granted to the aeronautical companies Airbus SE and Boeing Co.

This reduces commercial tensions between both parties, ending the conflict that began in 2004 and that led the countries involved to impose tariffs on food and alcoholic beverages during 2019.

The agreement reached suspends the rates authorized by the World Trade Organization for five years.

This could contribute to an optimistic session in the capital markets.

In Europe, the main indices advance around 0.40% on average, while in the United States the futures market indicates that the markets could start with gains close to 0.10 percent.

It is important to mention that, in the commodities market, oil prices continue their upward trend, with the WTI this morning reaching a maximum in the year of 71.95 dollars per barrel, due to the expectation of higher demand as The risk of new waves of the coronavirus is reducing globally.

Oil and peso

With the above, it becomes probable that the price of oil will reach the level of 75 dollars per barrel in the short term.

The gains in the price of oil have not been reflected in the performance of the foreign exchange market, where market participants are attentive to the announcement of the Federal Reserve’s monetary policy.

The only currency gaining ground due to the increase in oil prices is the Russian ruble with an advance of 0.07 percent.

During the session, the exchange rate is expected to trade between 19.89 and 20.09 pesos per dollar.

The euro starts the session with a depreciation of 0.12%, trading at 1.2106 dollars per euro, while the pound loses 0.38%, settling at 1.4059 dollars per pound.

Money market and debt

In the United States, the yield on the 10-year Treasury bonds shows an increase of 1.0 basis point, reaching 1.50%, while in Mexico the yield on the 10-year M bonds remains unchanged, at a rate of 6.67 percent.

Derivatives market and the peso

To hedge against a depreciation of the peso beyond 20.20 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.51% 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 20.0466 at 1 month, 20.3999 at 6 months and 20.8831 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE