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The peso depreciates at 20.25 per dollar

The peso starts the session with a depreciation of 0.29% or 5.8 cents, trading around 20.25 pesos per dollar, with the exchange rate touching a minimum of 20.1796 and a maximum of 20.3553 pesos, with which the peso-dollar parity returns to pierce the key resistance of 20.30 pesos, showing a moderate upward trend.

In the exchange market, the dollar strengthens again with the weighted index showing an advance of 0.16%, since in the United States the publication of economic indicators better than expected during yesterday’s session, has generated speculation that pressures could soon be observed additional inflationary factors.

It should be remembered that yesterday the ISM services indicator was published at 58.7 points during January, being its best level since February 2019.

Likewise, the ADP survey of private sector employment, published in Wednesday’s session, showed the creation of 174,000 job positions, above the 70,000 expected by the market and offsetting the loss of jobs in December.

In the bond market, the expectation of inflationary pressures has translated into a stable increase in the rate of return on Treasury bonds.

The 10-year bond rate has risen for six consecutive sessions a total of 14.2 basis points to 1.16%, approaching its highest level in January of 1.1855 percent.

The peso

In the foreign exchange market, the dollar gains against most currencies, with the Mexican peso being the fourth most depreciated currency, behind the Swedish krona with 0.62%, the South African rand with 0.59% and the Polish zloty with 0.51 percent .

Although the dollar is strengthening, there is no consistent pattern with a greater perception of risk in the foreign exchange market, as they lose currencies from emerging and advanced economies.

For its part, in the capital market, moderate gains are observed in Europe, with the main indices advancing on average close to 0.30 percent.

In the raw materials market, a mixed performance is observed, although it should be noted that, overnight, the price of corn reached a new maximum of 5.58 dollars per bushel, not seen since May 21, 2013.

This is due to the great demand from China, a country that needs to feed its growing pig herds, which had suffered a decline in 2019 due to the African swine flu.

Economic stimuli

At relevant events, today the United States Senate is going to discuss the proposed budget resolution, which would allow approval with a simple majority of a large part of the 1.9 billion dollar package proposed by Joe Biden.

Also today, it will be the meeting between Janet Yellen and financial regulators, where the recent episode of volatility observed in the stock market will be discussed.

The participating institutions are: the Securities and Exchange Commission (SEC), the Federal Reserve Board, the New York Federal Reserve and the Commodity Futures Trading Commission (CFTC).

On the other hand, the Bank of England announced its monetary policy decision, in which it kept the interest rate unchanged.

However, banks were told that they will have to prepare for the implementation of negative interest rates, something they added might not be imminent.

Contrary to expectations, the pound shows an advance of 0.33% against the dollar, trading at 1.3692 dollars per pound.

The Bank of England also adjusted economic growth forecasts, cutting the growth expectation for 2021 from 7.25% to 5%, reaching a full recovery in the first months of 2022.

Laboral sector

Regarding economic indicators, in the United States, 779 thousand new applications for unemployment support were reported in the week that ended on January 30, decreasing by 33 thousand with respect to the previous week and being below the 830 thousand expected by the market.

Continuous applications for unemployment support, from those who are already receiving support or continue to wait, decreased from 4,785 to 4,592 million.

Tomorrow the monthly employment report for January will be published, where the market expects the creation of 50 thousand job positions.

Automotive industry

In Mexico, the INEGI published automotive sales for January, which amounted to 81,203 units, the lowest for the same month since 2012.

In annual terms, auto sales deepened their decline, going from a 19.4% contraction in December to 22.5% in January.

The foregoing, as a consequence of more states reinforcing health measures in the face of the rebound in the pandemic.

The rest of the automotive sector indicators (production and export) will be released on Monday, February 8.

During the session, the exchange rate is expected to trade between 20.14 and 20.39 pesos per dollar.

The euro starts the session with a depreciation of 0.38%, trading at 1.1990 dollars per euro, while the pound advances 0.34% and is trading at 1.3694 dollars per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds increased by 1.4 basis points, to 1.15%, while in Mexico the yield on 10-year M bonds remained unchanged, at a rate of 5.58 percent.

The peso and 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 1.92% 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 20.3384 at 1 month, 20.6783 at 6 months and 21.0848 pesos per dollar at one year.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE

 

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