The peso loses against the dollar at 20.39 with a higher perception of risk

The peso begins the session with a depreciation of 0.47% or 9.6 cents, trading around 20.39 pesos per dollar, given a return in the perception of risk to global financial markets as a result of the advance of the coronavirus pandemic, which threatens activity global economy towards the end of the year.

It is worth mentioning that in Monday’s session the financial markets reacted optimistically to the announcement that the vaccine developed by Moderna is 94.5% effective in preventing cases, which allowed the exchange rate to temporarily drop to 20.1545 pesos per dollar.

However, the greater number of cases in the United States, where in the last 24 hours more than 166 thousand infected people and 73,014 hospitalized patients have been registered, has affected that optimism.

There are even states where there is talk of implementing new confinement measures, such as California, which plans to request that businesses remain behind closed doors, while Philadelphia has again imposed that they prohibit the operation of closed spaces such as gyms and restaurants.

The peso and Covid-19

Non-essential businesses remain closed in France, with the aim of resuming activities on December 1. However, the government indicated that restaurants and bars may remain closed until mid-January.

On the other hand, in the United Kingdom, a government medical adviser indicated that Boris Johnson should consider tightening social distancing measures, before the current restrictions end on December 2.

In the foreign exchange market, a mixed performance is observed, although they mainly lose currencies from emerging economies such as the Turkish lira with 0.52%, the South African rand with 0.43% and the Mexican peso.

The foregoing is a reflection of a lower appetite for risk that is also evident in the European capital market, where the main indices lose an average of 0.40%, while in the United States, the futures market shows a mixed performance, standing out near losses to 0.60% for the Dow Jones and the S&P 500.

Regarding economic indicators, in October, retail sales in the United States increased at a monthly rate of 0.3%, below market expectations of 0.5%, being the sixth consecutive monthly increase.

The highest monthly advance was observed in online stores (3.2%), followed by electronics stores (1.2 percent).

In its annual variation, retail sales increased 5.7%, spinning four consecutive months of annual increases.

Mexican debt

It is important to mention that during the weekend the Ministry of Finance and Public Credit announced that it carried out a debt refinancing, for a total amount of 6.6 billion dollars.

Indicators of Banxico

The operation consists of an exchange of short-term bonds for longer-term bonds, which have a lower interest rate.

During the session, the exchange rate is expected to trade between 20.25 and 20.55 pesos per dollar.

The euro starts the session with an appreciation of 0.26%, trading at 1.1883 dollars per euro, while the pound shows a depreciation of 0.44% and is trading at 1.3257 dollars per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds decreased by 3.4 basis points, at a rate of 0.87%, while in Mexico the yield on M-10 bonds decreased by 0.7 basis points, to 6.06 percent.

Derivatives market

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 1.44% 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 20.3998 at 1 month, 20.7469 at 6 months and 21.2003 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE