The Mexican peso closed the session with a depreciation of 1.55% or 31 cents, trading around 20.30 pesos per dollar, being the most depreciated currency in the wide basket of main crosses, followed by the South African rand that lost 1.54%, the Norwegian krone with 1.29% and the Australian dollar with 1.17%. During the session, the exchange rate touched a minimum of 19.9858 and a maximum of 20.3313 pesos.
The depreciation of the peso was the result of a greater aversion to risk in global financial markets, which increased the demand for dollars as a safe haven currency. The dollar weighted index closed the session with an increase of 0.65%, the highest advance since September 23.
The factors that led to the strengthening of the dollar were the following:
Market caution was raised prior to the Federal Reserve’s monetary policy announcement, as there was speculation about the possibility of forward guidance on the bond purchase program, given the stable economic recovery.
Following the announcement, Fed Chairman Jerome Powell pointed out that the economy is still far from a full recovery, mainly in relation to the Fed’s employment and inflation targets.
Powell sent the signal that they will continue to use all the tools at his disposal to support the recovery, adding that a recent slowdown in economic activity has been observed due to the pandemic.
In the capital markets globally, sharp falls were observed, mainly in the United States where the S&P 500 lost 2.57% and the Nasdaq 2.61%, the largest daily declines since October 28.
These losses are due to the continuing uncertainty related to the coronavirus pandemic and to the speculation that volatility in the capital market could continue in the short term, due to the participation of small investors through electronic platforms.
In previous days, these investors have coordinated for the massive purchase of some of the companies with short positions, generating strong jumps in the prices of companies such as GameStop (+ 1,744.53% in the year), Blackberry (+ 278.58%), Bed Bath & Beyond (+ 197.80%) and Nokia (+67.52 percent).
The perception of risk with respect to Mexico has risen. The daily number of new coronavirus cases continues to be at historic levels, with 362,811 new infections confirmed so far in January.
This equates to a 13.5% increase from confirmed cases during December and a 98.9% increase from confirmed cases in November 2020.
The sustained advance of the pandemic and the absence of a massive vaccination program contribute to a negative expectation for the economic recovery of Mexico relative to other countries such as the United States.
Likewise, in the short term there are other risks that could continue to increase the perception of relative risk in Mexico, such as the discussion of the reform of the Bank of Mexico Law in Congress scheduled for the following week.
In the session, the euro touched a low of 1.2059 and a high of 1.2170 dollars per euro. Finally, the euro peso touched a minimum of 24.2605 and a maximum of 24.6059 pesos per euro.
At the close, the interbank quotes for sale were 20.2980 pesos per dollar, 1.3693 dollars per pound and 1.2111 dollars per euro.
Gabriela Siller; PhD
Director of Economic-Financial Analysis.