The peso appreciates against the dollar: it is trading at 20.60

The peso starts the session with little change showing a slight appreciation of 0.10% or 1.98 cents, trading around 20.60 pesos per dollar, with the exchange rate touching a minimum of 20.5805 and a maximum of 20.7061 pesos.

In the wide basket of currencies, the Brazilian real ranks as the most appreciated currency with 0.20%. It is worth mentioning that yesterday President Jair Bolsonaro announced the reorganization of his cabinet, changing six ministers.

The changes could be seen as something positive for the relationship between the government and Congress, as Bolsonaro gave in to pressure and assigned centrist replacements.

The second currency that shows the highest gains against the dollar is the Taiwanese dollar with 0.11%, followed by the Mexican peso with 0.10 percent.

For its part, the US dollar shows a strengthening of 0.23% according to the weighted index.

In the bond market, the 10-year Treasury bond yield rate shows an increase of 4.11 basis points, standing at 1.75 percent.

The increase in rates reduces the demand for gold as a safe-haven asset, since it increases the opportunity cost since it does not generate interest.

Thus, gold begins the session with a contraction in its price of 1.60%, trading at 1,684 dollars per ounce.

The peso

The increase in Treasury bond rates has been supported by the expectation of a stronger recovery in the United States, which generates speculation about the possibility that the Federal Reserve will show a less flexible stance.

There are two key events that could continue to support this expectation of an accelerated recovery:

1. The vaccination plan presented by Joe Biden. Yesterday, Biden announced his vaccination plan for the following weeks, which consists of 90% of adults being eligible for the Covid-19 vaccine by April 19. He also pointed out that he will double the number of pharmacies participating in vaccination, making it more accessible.
2. The presentation of the infrastructure plan «Build Back Better», which will be detailed by Biden tomorrow. The package is estimated to be equivalent to about $ 3 trillion and include broadband expansion and investments in clean energy, in addition to traditional spending on infrastructure such as renovating roads and bridges.

Energy sector

On the other hand, the greater perception of risk regarding Mexico, derived from the initiative to the Hydrocarbons Law continues.

Morena’s bench plans to approve the reform to the Hydrocarbons Law via fast-track. The Energy and Budget Committees are expected to meet tomorrow to discuss the initiative.

In the capital market, a mixed performance is observed in the main indices of Europe, with the Euro Stoxx 500 gaining about 0.39% and the DAX of Germany with 0.60%, while the FTSE 100 losing 0.09 percent.

The low volume of operations stands out as it is Easter, averaging between these three indices a volume of operation 34% lower than that observed in the last 30 sessions.

In the United States, the main stock indexes began the session with losses of around half a percentage point, led by the NASDAQ, which fell 0.72%, while the lower appetite for companies in the technology sector continues as the vaccination campaign progresses.

Oil and peso

For their part, the main oil blends start the session with losses, as OPEC + delegates are expected to maintain a cautious stance as the fragility of the market continues.

This is due to the resurgence of coronavirus cases in Europe, which has prompted some governments in the bloc to reimpose restriction measures, while India and Brazil face increasingly severe outbreaks.

Given this, the price of WTI starts the session with a contraction of 1.59%, trading at 60.58 dollars per barrel.

During the session, the exchange rate is expected to trade between 20.56 and 20.78 pesos per dollar.

The euro starts the session with a depreciation of 0.36%, trading at 1.1723 dollars per euro, while the pound loses 0.21% and is trading at 1.3733 dollars per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds increased by 3.6 basis points, at a rate of 1.74%, while in Mexico the yield on 10-year M bonds remained unchanged, at 6.84 percent.

Derivatives market and the peso

To hedge against a depreciation of the peso beyond 21 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.95% 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 20.6961 at 1 month, 21.0734 at 6 months and 21.5547 pesos per dollar at one year.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE