The peso appreciates against the dollar: it is trading at 20.08

The peso starts the session with an appreciation of 0.13% or 2.7 cents, trading around 20.08 pesos per dollar, with the exchange rate touching a minimum of 20.0135 and a maximum of 20.1325 pesos.

In the foreign exchange market, a general weakening of the US dollar is observed, as most currencies gain ground, with the South African rand standing out with 0.58%, the Japanese yen with 0.57% and the Swiss franc with 0.56 percent.

As currencies from emerging and advanced economies advance, the appreciations of the franc and the yen are not the result of higher demand for safe haven currencies.

Greater caution is observed in capital markets, mainly in Europe where the main indices lose an average of about 0.15%. However, the losses are moderate and the result of a correction.

In the United States, the futures market points to a possible correction during the session, after the main indices reached new all-time highs during yesterday’s session.

Going forward, it is not ruled out that capital markets will continue their upward trend, given the expectation of new fiscal stimuli in the United States.

In the money market, the 10-year Treasury bond yield rate shows a decline of 2.4 basis points, standing at 1.15%, after yesterday reaching a maximum of 1.1981%, not seen since March 2020, before the expectation of higher inflationary pressures due to the expansionary fiscal policy.

Tax incentives

Yesterday, in the House of Representatives, the Democrats released the draft of the stimulus legislation that they will seek to pass.

The limit on direct checks stands out, which will only be for people who earn less than $ 100,000 a year.

The House of Representatives is expected to vote during the week of February 22, to later be discussed in the Senate. It is speculated that the approval of the stimuli will occur in March.

The peso and the energy sector

Regarding relevant news, in Mexico, on February 11 and 12, the Energy Commission of the Chamber of Deputies will have an open parliament with experts and specialists to discuss the proposed reform to the Electricity Industry Law.

On the other hand, yesterday the initiative announced in support of migrants was published to facilitate the entry in dollars for migrants and their families.

With the initiative, migrants will be able to open accounts remotely through the Banco de Bienestar, will have exchange centers available and will have more support from financial institutions in Mexico.

The governor of the Bank of Mexico, Alejandro Díaz de León, indicated that the measure will mainly benefit the border municipalities where the exchange of dollars in cash is used more, although he indicated that the central institution will remain respectful of the decision.

Prices

Regarding economic indicators, in January inflation stood at 3.54% at the interannual rate, after closing last year at 3.15 percent.

In its monthly variation, inflation stood at 0.86%, being the highest for the same month since 2017, when the price of gasoline was liberalized.

The pressures for inflation were concentrated in the non-core component, with an increase of 2.40% per month (+ 2.63% per year) due to increases in energy (+ 5.23% per month).

Within energy, the prices of low and high octane gasoline increased at a monthly rate of 6.06% and 5.35%, reflecting the advances in international reference prices, while domestic LP gas advanced 9.0% monthly, its largest monthly increase since January 2017.

It is important to highlight that 68.46% of monthly inflation was explained by the non-core component. On the other hand, core inflation stood at 0.36% monthly (+ 3.84% annually), where the highest monthly price increase was observed in food merchandise (+0.69 percent).

The peso

Additionally, the National Producer Price Index (INPP) registered a monthly increase of 1.04% and 5.22% at the interannual rate, after inflation was 3.68 percent in December.

Within the INPP, the agricultural component stands out, showing a monthly increase of 0.71% and an annual increase of 11.33%. By type of activity, secondary schools stand out, which advanced 1.63% monthly and 6.80% annually.

During the session, the exchange rate is expected to trade between 20.02 and 20.34 pesos per dollar.

The euro starts the session with an appreciation of 0.37%, trading at 1.2095 dollars per euro, while the pound gains 0.24% and is trading at 1.3774 dollars per pound.

The money and debt market

In the United States, the yield on 10-year Treasury bonds decreased by 2.1 basis points, to 1.15%, while in Mexico the yield on 10-year M bonds increased 2.4 basis points, at a rate of 5.69 percent.

The peso and the 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 1.50% 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 20.1409 at 1 month, 20.4785 at 6 months and 20.8905 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE