The peso appreciates against the dollar at 20.04

The peso starts the session with an appreciation of 0.32% or 6.4 cents, trading around 20.04 pesos per dollar, with the exchange rate trading between a minimum of 20.0251 and a maximum of 20.2915 pesos.

The downward movement in the exchange rate is the result of a correction, as market participants continue to assess the probability that a US $ 1.9 trillion fiscal stimulus package will be approved in the United States.

In the United States, Senate Majority Leader Chuck Schumer said he will seek to pass the new stimulus package in mid-March, when current unemployment benefits are about to expire.

On his side, President Joe Biden has said that he is willing to negotiate the stimulus package.

Exchange rate volatility is likely to remain high as long as the Covid19 pandemic continues to pose a risk to the economic recovery during the first quarter, as sessions will continue to oscillate between optimism due to new stimulus measures and pessimism due to the emergence of new cases. .

In Germany, Angela Merkel said that the handling of the pandemic in her country «has gotten out of control», so they will need stricter containment measures.

In contrast, in the United States, some states such as California, New York, Illinois and Michigan announced that they will begin to relax containment measures.

This would mainly allow the reopening of restaurants, bars, aesthetics and cinemas. However, this latest news has not translated into greater optimism within the US capital markets, where the main indices show a mixed performance prior to opening.

The peso and the Mexican market

Regarding economic indicators, in November, retail sales in Mexico registered a monthly increase of 3.29%, after falling 0.19% the previous month. The advance was supported by the extension of the discount period for «El Buen Fin», whose purpose was to avoid crowds.

At an annual rate, retail sales reported a 4.71% drop, adding ten months of setbacks. In the interior, 16 of the 22 subsectors showed monthly advances, highlighting the sales of department stores (11.89%) and clothing (5.85 percent).

In contrast, the greatest decreases compared to October were observed in sales of ice, beverages and tobacco (2.96%) and in stationery, books, magazines and newspapers (2.37 percent).

For its part, the Monthly Survey of Services (EMS) for November showed a monthly growth of 2.57% in total income from the supply of goods and services, spinning five monthly advances.

At the annual rate, a contraction of 14.58% was observed, accumulating 12 consecutive annual setbacks. By sector of economic activity, monthly contractions were observed in three of the nine categories including professional, scientific and technical services (-5.17%), leisure, cultural and sports services (-2.17%) and educational services (-0.12 percent) .

While, the rest of the categories showed monthly advances. In annual terms, only health services show a complete recovery, with an annual growth of 11.11 percent.

In the months of December and January, the data is expected to show stagnation, due to the fact that in December non-essential businesses were closed again in some states of the country, including Mexico City and the State of Mexico. It should be noted that between both entities they represent 34.1% of the country’s services sector.

During the session, the exchange rate is expected to trade between 19.92 and 20.22 pesos per dollar. The euro starts the session with an appreciation of 0.12%, trading at 1.2154 dollars per euro, while the pound loses 0.20% and is trading at 1.3702 dollars per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds increases by 1.0 basis point, to 1.04%, while in Mexico the yield on 10-year M bonds increases by 1.1 basis points, at a rate of 5.60 percent .

Derivatives market

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 1.55% 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 20.1084 at 1 month, 20.4478 at 6 months and 20.8611 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE