The peso advances against the dollar at 20.03

The peso closed the session with an appreciation of 0.33% or 6.5 cents, trading around 20.03 pesos per dollar, with the exchange rate touching a minimum of 20.0042 and a maximum of 20.1478 pesos per dollar.

The peso was ranked as the fifth most appreciated currency in the basket of main crosses, after the Chilean peso which advanced 1.18%, the South Korean won with 0.88%, the Colombian peso with 0.69% and the Hungarian forint with 0.34 percent.

In the foreign exchange market, the dollar weighted index showed a moderate weakening, falling 0.06% and spinning four sessions down in which it accumulated a 1.19 percent decline.

The peso

The weakness of the dollar is mainly due to two factors associated with the expectation that monetary stimulus will continue in the United States.

First factor

In the United States, inflation in January was at an annual rate of 1.4%, slightly below the market’s expectation of 1.5%, while in its monthly comparison the index advanced 0.3 percent.

Core inflation remained unchanged in its monthly comparison and stood at 1.4% annually.

This shows that there are no significant inflationary pressures to justify the Federal Reserve moving away from its highly flexible stance.

It is important to note that the dollar weighted index showed a moderate weakening after the inflation data was released at 7:30 am.

Second factor

During the conference organized by the Economic Club of New York, the president of the Federal Reserve, Jerome Powell reiterated that the recovery of the labor market is far from being complete, since to date there is still a loss of about 10 million jobs with respect to what was observed prior to the pandemic.

Powell emphasized that the Central Bank will maintain its interest rate and its bond purchase program until full employment is returned.

Powell also pointed out that it takes more than a flexible monetary policy, referring to the importance of the expansionary fiscal policy that is in charge of the government.

Finally, Powell ruled out the risk of inflationary pressures and added that the Central Bank will not abandon its expansionary monetary stance, even if an increase in inflation is observed above 2 percent.

Powell’s comments and expectations of monetary and fiscal policy in the United States had a limited impact on the capital markets, where the main US indices closed with a mixed performance, after advancing in the last hours of operation.

The S&P 500 closed with a 0.03% decrease, while the Dow Jones closed with a 0.20 percent gain.

The oil and the peso

More significant gains were observed in the commodities market, the price of WTI closed with a gain of 0.26%, trading at 58.51 dollars per barrel.

For its part, the price of copper increased 1.78%, trading at 8,303 dollars per metric ton, a level not seen since October 5, 2012.

The appreciation of the Chilean peso, the most appreciated currency of the session, was supported by the strengthening of the copper price.

In the session, the euro touched a minimum of 1.2109 and a maximum of 1.2144 dollars per euro. Finally, the euro peso touched a minimum of 24.2716 and a maximum of 24.4213 pesos per euro.

At the close, the interbank prices for sale stood at 20.0295 pesos per dollar, 1.3833 dollars per pound and 1.2120 dollars per euro.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE