The peso starts the session with a moderate appreciation of 0.14% or 2.7 cents, trading around 20.13 pesos per dollar, with the exchange rate touching a minimum of 20.1138 and a maximum of 20.2185 pesos, moving in line with the exchange market where most currencies show a moderate advance against the dollar.
The dollar weighted index is down 0.11 percent.
Caution is perceived in global financial markets.
On the one hand, the optimism associated with the global economic recovery continues.
The Chairman of the Federal Reserve, Jerome Powell, mentioned in an interview that the US economy is at a turning point, where it will begin to see faster growth in the labor market. This is supported by the vaccination campaign, which registers that 35.5% of the US population has received at least one dose.
However, since last week there was evidence of inflationary pressures related to the rapid economic recovery driven by flexible monetary and fiscal policies, particularly in the United States, where producer inflation in March stood at 1.0% monthly and 4.2% annual, its highest level since September 2011.
This: 1) increases the probability that the Fed anticipates abandoning its broadly flexible monetary stance and 2) could generate upward pressure on interest rates in the primary and secondary markets for government securities, mainly in the United States.
Higher interest rates reduce the attractiveness of holding positions in emerging economy stocks, which in turn increases the likelihood of weak currency episodes.
The week will be key for the performance of interest rates during the second quarter.
On Tuesday at 7:30 a.m. Central Mexico, inflation in the United States for March will be published, which is expected at an annual rate of 2.5%, the highest since January 2020.
If it is above this level, upward pressure on interest rates is likely.
For its part, today at 12:00 hours the result of the auction of 38 billion dollars in 10-year Treasury bonds will be announced and tomorrow at the same time the results of the auction of 24 billion dollars in 30-year bonds.
In the first two days of the week, another $ 169 billion in Treasury notes at different maturities will also be auctioned.
In total, over the next 3 weeks the Treasury department is expected to auction $ 370 billion in debt instruments and the results of these auctions will be largely determined by the latest inflation expectations.
Regarding economic indicators, in Mexico the International Traveler Survey for February was published.
3.4 billion visitors entered the country during the month, 10.5% less than in January, and 58.3% less than in the same month as last year.
Of these, 1,587 million were international tourists, which at an annual rate presented a contraction of 57.9 percent.
Foreign exchange income from international travelers was 799.1 million dollars, 66.1% less than in the same month last year, with an average expenditure of 235.04 dollars per visitor (-18.7% annually).
With regard to expenditures, a total of 2,093 million visitors left the country, a figure 66.7% lower than that of February 2020.
The contraction in expenditures is greater than that of income because the Mexican economy has taken longer to recover, in addition to the fact that Mexico never implemented control measures for the entry of travelers and tourists.
Covid-19 and peso
February 2020 was the penultimate month of the pre-pandemic period, given that in March 2020 the country still managed to receive just over 6.5 million visitors and it was until April that tourism plummeted to only 2.2 million, so still another month of strong annual contractions is expected before rates normalize due to the base effect.
This does not mean that tourism has recovered, since relative to the pre-pandemic months it will continue to be very low.
During the session, the exchange rate is expected to trade between 20.07 and 20.22 pesos per dollar.
The euro starts the session with an appreciation of 0.13%, trading at 1.1914 dollars per euro, while the pound gains 0.37% and is trading at 1.3758 dollars per pound.
Money market and debt
In the United States, the yield on 10-year Treasury bonds increases by 1.0 basis point, at a rate of 1.67%, while in Mexico the yield on 10-year M bonds increases by 2.7 basis points, to 6.59 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 1.51% 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 20.1998 at 1 month, 20.5503 at 6 months and 21.0143 pesos per dollar at one year.
Gabriela Siller; PhD
Director of Economic-Financial Analysis.