The peso appreciates against the dollar helped by announcement in Brazil

The peso closed the session with an appreciation of 0.80% or 16.2 cents, trading around 20.09 pesos per dollar, with the exchange rate touching a maximum of 20.2971 and a minimum of 20.0786 pesos per dollar.

The Mexican peso was the third most appreciated currency in the wide basket of main crosses, which was mainly due to two factors:

First factor

The US dollar weakened across the board, with the weighted index shedding 0.45% in its biggest daily decline since April 23.

The weakness of the dollar is due to the reduction of speculation on the upside risks to inflation in the United States and the possibility that the Fed will adopt a less flexible monetary stance.

During yesterday afternoon, several Fed officials indicated that the most recent inflationary pressures are temporary and do not see a risk that inflation will persist above 2%.

Although these comments contributed to the weakness of the dollar, the attention of the markets in Friday’s session will be focused on the publication in the United States of the April employment report, in particular of the non-farm payroll that is expected to show the creation of about 1 million jobs during the month.

This could generate volatility in the foreign exchange market during the morning.

Second factor

The Mexican peso advanced along with the currencies of emerging economies, such as the Brazilian real, which appreciated 1.42%, trading at 5.28 reais per dollar, being the most appreciated currency in the session, followed by the South African rand, which advanced 1.19% to settle at 14.20 rands. per dollar, with the peso ranking third.

The appreciation of the peso at par with the Brazilian real is due in part to a carry-over effect, after yesterday afternoon the Central Bank of Brazil announced an interest rate increase from 75 basis points to 3.50%, the second being the increase in the year of the same magnitude, from the historical minimum of 2.00% in which it was located between August 2020 and March 2021.

It should be noted that the Bank of England today announced a decrease in the pace of bond purchases, taking a first step towards a less flexible monetary stance, something that the Bank of Canada had already done in April.

Going forward, the rapid recovery of several economies and the resulting inflationary pressures increase the probability that central banks will adopt less flexible positions and this possibility is not ruled out for Banco de México.

The peso and prices

Tomorrow the inflation in Mexico will be published, where it is estimated that the monthly inflation for April will be at a rate of 0.27% and the annual inflation at 6.03 percent.

It is worth mentioning that the estimated monthly inflation would be the highest for an equal month since April 2009.

Taking this estimate into account, it can be said that about 45% of the increase in annual inflation so far this year is due to the low base of comparison and 55% of the increase is the result of inflationary pressures in the first fortnights of the year. anus.

The recent increases in the price of corn and the evidence of an economic reactivation since March, increase the probability that inflationary pressures will continue to be observed in the year.

It is important to mention that the appreciation of the peso during the session does not eliminate the risk that the peso-dollar parity will once again reach levels close to 20.20 pesos per dollar in subsequent sessions.

It should be remembered that in May upward pressures for the exchange rate continue to be anticipated in the run-up to the federal elections on June 6.

Likewise, the perception of risk with respect to Mexico is likely to rise in the coming months, as the United States government makes observations on the reforms and institutional changes that are being carried out in Mexico and that affect its economic interests.

USMCA and the peso

Today the American Petroleum Institute published a letter addressed to the Secretary of State, the Secretary of Energy, the Secretary of Commerce and the office of the United States Trade Representative, signaling concern and asking that the recent reforms that violate be discussed with Mexico USMCA commitments and may even result in indirect expropriations.

It is not ruled out that the United States contemplates the possibility of imposing non-tariff barriers to trade with Mexico or even tariffs, which is especially relevant in a year in which the economic recovery is driven in Mexico by the growth of the United States.

In the session, the euro touched a low of 1.1993 and a high of 1.2027 dollars per euro. Finally, the euro peso touched a minimum of 24.2193 and a maximum of 24.4457 pesos per euro.

At the close, the interbank quotes for sale stood at 20.0945 pesos per dollar, 1.3892 dollars per pound and 1.2060 dollars per euro.


Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE