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The peso (20.58 vs. dollar), commodities, bonds and the Fed

The peso closed with a weekly depreciation of 3.56% or 70.7 cents, trading around 20.58 pesos per dollar, being the highest depreciation since the week ended September 25, 2020.

The exchange rate touched a minimum of 19.8388 and a maximum of 20.7488 pesos per dollar, a level not seen since March 29.

It is worth mentioning that the Mexican peso accumulates six consecutive sessions of depreciation against the dollar, in which it accumulates a loss of 4.50%, marking a change in the upward trend, which could lead to parity towards the level of 21 pesos per dollar.

It is important to remember that the upward movement of the exchange rate began on Friday of the previous week, motivated by the publication in the United States of May inflation, which stood at 5%, while core inflation stood at 3.8% , its highest level since April 1992.

This week, the upward trend in the exchange rate was due to a generalized strengthening of the US dollar, which advanced 1.96%, being its largest weekly increase since September 2020.

In the broad basket of 31 main crosses, most currencies with the exception of the Brazilian real lost ground during the week.

The mexican peso

The performance of the exchange rate during the week was due to the following factors:

First factor

The dollar strengthened significantly on the expectation that the Federal Reserve could adopt a less flexible monetary stance in the coming months.

The monetary policy announcement on Wednesday highlighted an upward adjustment of the growth forecasts for 2021 from 6.5% to 7.0%, while the inflation forecast for 2021 was revised from 2.4% to 3.4%, the fourth consecutive increase of inflation expectations for this year.

This sends the signal to the market that inflationary pressures may not be transitory to the extent that the Fed had indicated for most of the year.

In the same statement the dot plot showed that 13 of the 18 FOMC members think there could be at least one interest rate increase in 2023 and 11 of 18 think there could be at least two 25 basis point increases.

This contrasts with the expectation in March in which only 7 of 18 members considered the possibility of an increase in the rate in 2023.

Second factor

Louis Fed Chairman James Bullard said it might be appropriate for the Federal Reserve to start raising interest rates next year on Friday morning, after St. Louis Fed Chairman James Bullard started raising interest rates next year. with inflation projections that are above the 2% target.

According to Bullard and his inflation projections, the right time to raise the rate would be towards the end of 2022.

Like him, other members of the Federal Open Market Committee (FOMC) are likely to display less flexible language about the future of monetary policy.

Third factor

Options and futures on stocks and indices simultaneously expired in Friday’s session, known as “Quadruple Witching Day.”

The foregoing accentuates the volatility of the financial markets and not only of the stock market, since adjustments are made to investment portfolios, which implies operations in the bond, raw material and exchange market.

In Friday’s session, the rate of the 2-year Treasury Notes showed an increase of 4.7 basis points, touching a maximum of 0.2824%, its highest level since April 7, 2020.

Fourth factor

The week saw losses in the prices of some raw materials, mainly industrial metals and agricultural products, which had a downward effect on the currencies of emerging economies and producers of raw materials.

In the foreign exchange market, the most depreciated currencies during the week were: the South African rand (-4.41%), the Hungarian forint (-4.15%), the Turkish lira (-4.03%), the Norwegian krone (-3.88%), the Chilean peso (-3.58%), the Mexican peso (-3.56%), the Swedish krona (-3.39%) and the Colombian peso (-3.35%).

In the commodities market, the following weekly losses were observed: soy (-8.60%), corn (-7.05%), wheat (-3.10%), palladium (-10.96%), copper (-8.57%), platinum (-9.06%), silver (-7.26%), gold (-5.71%), aluminum (-3.23%), gasoline (-0.94%) and natural gas (-2.49%).

Other currencies

It is important to mention that during the week the euro closed with a depreciation of 1.93%, in position number 17 among the depreciated ones, trading at 1.1875 dollars per euro, while the pound sterling depreciated 2.06%, ranking 15 among the most depreciated and trading at $ 1.3817 per pound.

During the week the pound touched a level of 1.3795 dollars per pound, its worst level against the dollar since April 16, when it touched a level of 1.3727 dollars per pound.

In addition to expectations for US monetary policy, there are two factors behind the depreciation of the pound that are worth noting:

  1. This Friday, the UK retail sales for May were published, showing a monthly decrease of 1.4%, the first decline since January. The decrease is due to a reallocation of spending, after restaurants and other services were reopened, so the population moderately reduced its consumption of goods in the month.
  2. A clear risk for the recovery of the United Kingdom are the cases of coronavirus, since since May the new infections have risen, from levels close to 2,000 daily infections in the first days of May to more than 7,000 daily infections between the 9 and the June 15, registering 8,811 infections on June 16 and 10,811 infections on June 17, levels that had not been seen since the last week of February.

On the week, the euro hit a low of 1.1848 and a high of $ 1.2147 per euro. For its part, the euro peso touched a minimum of 24.0166 and a maximum of 24.6262 pesos per euro.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE

 

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