The peso appreciates against the dollar: it is trading at 20.59

The Mexican peso closed the session with an appreciation of 1.47% or 30.7 cents, trading around 20.59 pesos per dollar, with the exchange rate touching a minimum of 20.5843 and a maximum of 20.9275 pesos per dollar.

In the last three sessions, the peso accumulates an appreciation of 4.20 percent.

During the session, the exchange rate moved in line with the dollar weighted index, which closed with a 0.53% decline, accumulating three consecutive sessions down.

The peso

There were three factors that contributed to the appreciation of the peso against the dollar:

First factor

During the morning, the European Central Bank (ECB) kept its interest rates unchanged, as well as the bond purchase program that was launched after the pandemic for 1.85 trillion euros, with an expiration date in March 2022.

However, the ECB announced that it will significantly increase the rate of asset purchases during the second half of the year, with the aim of preventing upward movements in rates in the secondary market.

The move sends the signal that central banks can take action to contain the recent rise in interest rates.

Second factor

At 12:00 hours, the Treasury Department held an auction of 24 billion dollars of 30-year bonds, which was well received by the market.

The demand was 2.28 times what was auctioned, up from 2.18 times the auction on February 11.

For its part, the highest accepted rate was 2.29%, above the previous auction for an equivalent instrument of 1.93%, but in line with the levels observed in the secondary market.

The yield rate on 10-year Treasury bonds closed the session with a moderate increase of 1.2 basis points, standing at 1.53%, while the 30-year Treasury bond rate rose 4.4 basis points at 2.28%, although it touched a level of 2.26% immediately after the auction.

It should be added that the recent stability in Treasury bond rates is partly due to the fact that the market is awaiting the Fed’s monetary policy announcement scheduled for March 17.

While the release is expected to show a flexible monetary stance, it will be the first time since December 16 that updated economic projections have been released and upward revisions to inflation and economic growth forecasts are likely.

Third factor

The $ 1.9 trillion fiscal stimulus package just passed in Congress was enacted in the United States.

The stimulus package increases the likelihood of faster economic growth in the United States, which in turn would have a positive effect on Mexico‘s economic recovery through exports.

In the session, the Mexican peso was the third most appreciated currency in the wide basket of main crosses, the Brazilian real being the most appreciated with 2.40% and the South African rand with 1.59 percent.

Electrical reform

With respect to Mexico, today it was highlighted that a federal judge has provisionally suspended the effects of the reform to the Electricity Industry Law.

The measure was requested by a company, but benefits all participants in the wholesale electricity market.

The suspension is provisional and will be reviewed on March 18 in an incidental hearing, while on April 27 a constitutional hearing will be held, where it will be decided whether to grant protection against the modifications to the Electricity Industry Law. 

Tomorrow, Friday, the industrial activity indicator for the month of January will be published in Mexico, which will be the first hard data to know the real performance of the mining, construction and manufacturing subsectors during the first month of the year.

It should be remembered that, as of December, industrial activity accumulated seven consecutive months of recovery at a monthly rate, observing stagnation in December, growing only 0.12% compared to the previous month.

This raises the risk that industrial activity in January will show a stagnation or a moderate monthly contraction.

Within industrial activity, the manufacturing subsector is the only one that shows a complete recovery, after growing at an annual rate of 0.51% in December, after 14 consecutive months of contraction.

Industry and peso

It is important to mention that, within manufacturing, the recovery has been largely supported by the manufacture of transportation equipment, which grew at an annual rate of 2.64% in December, after achieving a complete recovery since October.

In the first two months of 2021, there were several factors that affected the recovery of industrial activity: 1) the worsening of epidemiological conditions at the beginning of the year, 2) the winter storm that hit Texas and northern Mexico and caused blackouts and shortage of natural gas, 3) the global shortage of semiconductors, which has forced companies in the automotive sector to reduce their production, which was already evident in the automotive production records in Mexico.

In the session, the euro touched a low of 1.1916 and a high of 1.1990 dollars per euro. Finally, the euro peso touched a minimum of 24.6781 and a maximum of 24.9417 pesos per euro.

At the close, the interbank quotes for sale stood at 20.5915 pesos per dollar, 1.3993 dollars per pound and 1.1990 dollars per euro.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE