The peso gains against the dollar in six consecutive sessions

The peso begins the session with an appreciation of 0.36% or 7.2 cents, trading around 19.85 pesos per dollar, with the exchange rate touching a maximum of 19.9415 and a minimum of 19.8308 pesos per dollar, a level not seen since January 22 .

With today’s appreciation, the exchange rate accumulates six consecutive sessions downward, with the peso accumulating an appreciation of 1.56 percent.

For now, the exchange rate maintains a downward trend and it is likely that in the short term it will reach the key support of 19.70 pesos per dollar, and then go to the minimum level of the year (reached on January 21) of 19.5494 pesos.

The appreciation of the peso is a direct result of a weakening of the US dollar against its main crosses.

Likewise, the dollar weighted index begins the session with a decline of 0.41%, falling during six sessions in which it accumulates a loss of 1.11 percent.

The peso

It is the first time that the dollar index has lost six consecutive sessions since the first week of June 2020.

Globally, the weakness of the dollar is due to the continued optimism about the economic recovery process, which increases the appetite for risk and allows asset gains in the capital markets and currencies of emerging economies.

It should be remembered that last week the main capital market indices in the United States reached new record highs after the publication of good quarterly results for companies in the financial sector.

A factor that also contributes to the weakness of the dollar is the strengthening of key currencies such as the British pound that appreciates 0.72%, trading at 1.3934 and reaching its best level since March 19, while the euro advances 0.43%, trading at 1.2035 dollars per euro, being its best level since March 4.

These gains are driven by positive expectations about the vaccination process in Europe, as it was announced that the pharmaceutical company Pfizer will make 100 million doses available to the Eurozone.

GDP

Regarding economic indicators, INEGI published the Timely Indicator of Economic Activity (IOAE), which anticipates an annual contraction of 2.14% of the Global Indicator of Economic Activity (IGAE) for March, equivalent to a monthly growth of 0.71 % according to the published nowcast estimate.

It should be remembered that the IOAE for February showed a monthly contraction of 0.72% in economic activity. With these data, the probability that, in the first quarter, economic activity has shown a quarterly growth close to 0.10 percent increases.

March was characterized by being the first month in which no state in the country went to an epidemiological red light, which allowed the relaxation of confinement measures, especially in the service sector.

In addition, a higher rate of vaccination was achieved, showing an advance of 8.68% of the total population that has already received at least one dose.

Although the vaccination process has been slow, it has generated optimism, raising consumer confidence to 40.4 points, its highest level since March 2020. Going forward, significant risks remain in the Mexican economy including: 1) global shortages of semiconductors, which has slowed exports in the automotive sector and 2) the discussion and possible approval of reforms that inhibit private investment, including the reform of the Hydrocarbons Law, which is expected to be discussed and voted on on the day of today in the Senate.

Manufacturing

For its part, INEGI published the figures from the Monthly Survey of the Manufacturing Industry corresponding to February 2021, which show an annual fall of 0.2% and a monthly contraction of 3.8 percent.

It is important to remember that, during this month, after the freeze that hit the southern United States and northern Mexico, the lack of natural gas and cold temperatures forced many manufacturing companies to suspend their operations for a couple of days, resulting in a decrease in its production.

The sectors most affected and that have not yet been able to recover from the pandemic are clothing manufacturing (-21.4% annually) and leather and leather tanning and finishing (-15.3 percent).

In addition, after what happened in the month in the north of the country, the manufacturing of transport equipment was greatly affected, registering an annual contraction of 16.1% when in January they showed a contraction of 6.6 percent.

On the other hand, the subsectors with the highest annual growth were basic metal industries (28.1%), manufacture of accessories, electrical appliances and power generation equipment (19.2%), manufacture of metal products (16.4%) and manufacture of textile products, except clothing (16.2 percent).

As mentioned on previous occasions, the secondary sector took little time to recover from the pandemic crisis and has served as the driver of economic recovery thanks to its high dependence on external demand.

However, the challenges facing the sector are related to the deterioration in investment, since it limits the capacity for growth of economic activity.

During the session, the exchange rate is expected to trade between 19.79 and 19.98 pesos per dollar.

The euro starts the session with an appreciation of 0.42%, trading at 1.2033 dollars per euro, while the pound gains 0.77% and is trading at 1.3938 dollars per pound.

Money market and debt

In the United States, the 10-year Treasury bond yield increased 0.9 basis points, to 1.59%, while in Mexico the 10-year M bond yield remained unchanged at 6.58 percent.

Derivatives market and the peso

To hedge against a depreciation of the peso beyond 20.00 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.66% 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 19.9112 at 1 month, 20.2557 at 6 months and 20.6893 pesos per dollar at one year.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE