The peso (20.04 vs. dollar), GDP in France and consumption in the US

The peso starts the session with a depreciation of 0.36% or 7.2 cents, trading around 20.04 pesos per dollar, with the exchange rate touching a maximum of 20.0769 pesos.

The Mexican peso loses ground along with the Turkish lira, which lost 1.08% and whose exchange rate hit an all-time high this morning of 8.6123 lira per dollar.

Likewise, the depreciation of the lira occurs because the central bank maintains a too flexible monetary stance, despite strong inflationary pressures, as annual inflation in April reached 17.14 percent.

So far this year, the Turkish lira is the most depreciated currency, losing 15.59%, due to a lack of confidence in its central bank.

It should be remembered that, in March, Turkish President Erdogan fired the then central bank governor, Naci Agbal, who had been adjusting interest rates upwards to counter inflationary pressures.

Before the dismissal of the central bank governor, the Turkish lira showed an appreciation in the year of 2.98% (as of March 19), to later observe a drop of 8.08% after the news was released.

Since then, the Turkish lira has gradually lost ground until today, which has reached an all-time high.

The mexican peso

It is important to note that, in the foreign exchange market, most currencies lose ground against the dollar, as a result of adjustments in portfolios at the end of the month, but also due to the expectation that today the president of the United States will release a budget that consider spending of $ 6 trillion over the next fiscal year and could drive US debt to 117% of GDP in the next 10 years.

It should be remembered that the expectation of an expansionary fiscal policy also feeds the expectations of sustained economic growth and the risk of inflationary pressures.

Regarding relevant news, this morning the review of economic growth in France was released, which showed a quarterly contraction of 0.1% during the first quarter of the year, thus accumulating two consecutive quarterly falls after falling 1.5% in the fourth quarter 2020.

This would be the second time that France’s economy has entered a recession after the start of the pandemic.

Economic activity continues to be affected in France during the second quarter, after Macron ordered a new lockdown, which has caused a monthly drop of 8.3% in consumer spending during April.

Although this decline is unlikely to last, low economic growth is likely to be observed in that country during the second quarter.

Tax incentives

In the United States, the Personal Income and Consumption report for April was published.

Personal income showed a monthly contraction of 13.1% during April, after a historical increase of 20.9% was observed in March, driven by the delivery of fiscal stimuli.

The savings rate stood at 14.9% in April, remaining well above the pre-pandemic level (February 2020) of 8.3 percent.

Personal consumption increased at a monthly rate of 0.5%, in line with market expectations.

Likewise, this morning in the United States the report on advanced trade indicators for April was published.

In the fourth month of the year, there was a merchandise deficit of 85.2 billion dollars, below the market’s expectation of a deficit of 91.9 billion dollars and decreasing by 7.3% compared to March.

During the session, the exchange rate is expected to trade between 19.89 and 20.10 pesos per dollar. The euro starts the session with a depreciation of 0.43%, trading at 1.2143 dollars per euro, while the pound loses 0.39%, standing at 1.4152 dollars per pound.

Money market and debt

In the United States, the yield on the 10-year Treasury bonds increased by 0.5 basis points, to 1.61%, while in Mexico the yield on the 10-year M bonds remained unchanged at a rate of 6.72 percent.

Derivatives market and the peso

To hedge against a depreciation of the peso beyond 20.50 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.38% 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 20.0988 at 1 month, 20.4524 at 6 months and 20.9365 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE