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The peso appreciates against the dollar for the 2nd consecutive month

The peso closed April with an appreciation of 0.86% or 17.5 cents, trading around 20.26 pesos per dollar, advancing for the second consecutive month, with the exchange rate touching a minimum of 19.7850 and a maximum of 20.4974 pesos per dollar.

For most of the month, the peso appreciated along with a weakening of the US dollar, the result of a relaxation of speculation about the future of US monetary policy, after the monetary authorities of that country reiterated that they would maintain a broadly accommodative posture.

It is worth mentioning that between April 1 and 23, the dollar weighted index showed a significant decline of 2.13 percent.

The Mexican peso cut its gains during the last week of April, in which it lost 2.18% or 43 cents, after advancing against the dollar for four consecutive weeks.

Peso

The depreciation of the peso in the last week of April is mainly due to two factors:

First factor

The market has once again turned its attention to the US economic recovery and the possibility of the Fed adopting less flexible language.

In the latest monetary policy announcement from the Federal Reserve, it was noted that the US economy is advancing at a more stable pace.

This fuels the expectation of inflationary pressures in the coming months.

In the last week of April, the 10-year Treasury bond rate closed with an increase of 7.5 basis points, reaching 1.63%, the first weekly increase after three weeks of decline.

In the last week of the month, the dollar weighted index strengthened 0.49%, its largest weekly increase since the end of March.

Second factor

The perception of risk has increased with respect to Latin America, mainly in Peru, where presidential elections will be held on June 6, and in Chile, since presidential elections will be held in November.

In both cases, it is feared that left-wing candidates are more likely to win, raising the risk of anti-market policies. It should be remembered that, in the last week of the month, the Peruvian sol reached an all-time high of 3.8464 soles per dollar.

Inflation

It should be added that, in the case of the Mexican peso, there is an upward risk factor during May: the prelude to the federal elections on June 6.

Likewise, it is estimated that the volatility of the exchange rate could rise during the month, pushing the exchange rate to levels between 20.50 and 20.70 pesos per dollar temporarily, so that after the elections a return of the exchange rate to levels close to it is observed. at 20.00 pesos per dollar.

It is important to note that significant inflationary pressures were confirmed for Mexico during April, as annual inflation was 6.05% in the first half of the month.

This raises the inflation expectation at the end of the year to 5% and reduces the probability that Banco de México will cut the interest rate again during the year and now the expectation is that the rate will remain unchanged at the current level of 4.00% and then rise between 25 and 50 basis points in 2022.

Exchange rate and the peso

Despite the appreciation of the peso during the first weeks of April, the holdings of government securities by foreign residents continued to show a downward trend.

On April 21, an outflow of capital from government securities of 4,501.09 million pesos was observed.

With this, in the year an outflow of 111,051.45 million pesos is accumulated, which is equivalent to 43.17% of the capital outflow for all of 2020.

For the month, the euro hit a low of 1.1713 and a high of $ 1.2150 per euro. Finally, the euro peso touched a minimum of 23.7911 and a maximum of 24.4051 pesos per euro.

At the close, the interbank quotes for sale stood at 20,2580 pesos per dollar, 1.3810 dollars per pound and 1.2020 dollars per euro.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE

 

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