The peso appreciates against the dollar at 19.80 units
The peso begins the session with an appreciation of 0.65% or 12.9 cents, trading around 19.80 pesos per dollar, with the exchange rate touching a new low for the week of 19.8035 pesos per dollar, a level not seen since April 26.
The appreciation of the peso is due to three factors:
First factor
Speculation on inflationary pressures in the United States and the possibility that the Fed will abandon its broadly flexible monetary stance earlier than expected has been reduced in the foreign exchange market.
The dollar weighted index is down 0.26%, its biggest decline since Friday of last week.
Second factor
Once again, there are gains in the commodity market. The WTI starts the session with an advance of 1.13%, trading around 64.55 dollars per barrel, while natural gas rises about 2.90 percent.
Among industrial metals there are mixed results, but aluminum advanced 0.39% and nickel 0.62 percent.
Finally, among agricultural products, corn rose 0.85%, cotton 0.52%, sugar 0.82% and wheat 2.35 percent.
For this reason, in the foreign exchange market, several of the top-earning currencies are commodity-producing countries.
The Norwegian krone is the most appreciated, advancing 1.16%, followed by the Turkish lira (+ 0.88%), the New Zealand dollar (+ 0.75%), the Hungarian forint (+ 0.73%) and the Mexican peso.
Third factor
Banco de México sent the signal to the market to be more cautious by mentioning in the statement that the balance of risks for inflation is biased upward, something that had not happened since May 2019.
The foregoing strengthens the expectation that Banco de México will keep interest rates unchanged at 4.0% during the coming months and could choose to raise the rate in the scenario of persistent and non-transitory inflationary pressures.
During Thursday’s session, the expectation for the monetary policy announcement and the content of the statement were the main determinants of the appreciation of the peso.
US market
Regarding economic indicators, in the United States, April retail sales were published that showed a monthly growth of 0.0%, below the market’s expectation of 1.0% and showing a stagnation in the recovery, which is consistent with the low creation of April employment.
For its part, growth in March was revised up from 9.8% to 10.7%. At an annual rate, retail sales showed an increase of 51.2%, spinning eleven consecutive advances.
The significant annual increase is due in part to a base comparison effect, since in April 2020, retail sales fell 19.9% annually.
Also, the Center for Disease Control of the United States (CDC, for its acronym in English) indicated that people who are fully vaccinated, will be able to stop wearing masks in most cases. With the exception of airports, public transport and hospitals.
This could have a positive effect on the confidence of the population and accelerate the recovery of the service sector in that country.
During the session, the exchange rate is expected to trade between 19.76 and 19.90 pesos per dollar.
The euro starts the session with an appreciation of 0.36%, trading at 1.2124 dollars per euro, while the pound gains 0.17% and is trading at 1.4076 dollars per pound.
Money market and debt
In the United States, the yield on the 10-year Treasury bonds decreased by 1.4 basis points, to 1.64%, while in Mexico the yield on the 10-year M bonds is unchanged at 6.93 percent.
Derivatives market and the peso
To hedge against a depreciation of the peso beyond 20.00 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.77% 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 19.8969 at 1 month, 20.2542 at 6 months and 20.7304 pesos per dollar at one year.
Gabriela Siller; PhD
Director of Economic-Financial Analysis.
Banco BAS
