The peso loses against the dollar: it is trading at 20.74

The peso starts the session with a depreciation of 0.77% or 0.16 cents, trading around 20.74 pesos per dollar, with the exchange rate touching a maximum of 20.7883 and a minimum of 20.5936 pesos.

Today, the Mexican peso is the third most depreciated currency in the wide basket of currencies, with the Chilean peso showing the highest depreciation of 1.24%, followed by the Turkish lira with 1.05 percent.

For its part, the dollar weighted index shows a strengthening of 0.14 percent.

The peso

The depreciation of the Mexican peso is mainly due to the following two factors:

First factor

Greater perception of risk over Mexico, as a consequence of the reform initiative to the Hydrocarbons Law, which, if approved, would give the government the possibility of suspending permits on hydrocarbons «in order to guarantee the interests of the Nation», including the import, marketing, storage permits, etc.

Likewise, the reform would allow the government to contract Pemex to operate the facilities that are under «temporary occupation, intervention or suspension» provided for in the initiative.

The reform increases uncertainty in the Mexican energy market and puts private investment in the sector at risk.

Second factor

Coronavirus cases worldwide have increased.

Currently the epicenter of the pandemic is in developing countries such as Brazil and India, where 44,326 and 68,020 new cases were registered in the last 24 hours, respectively.

Also, cases continue to increase in European countries.

German Chancellor Angela Merkel pointed out that she could exert federal force around confinement measures to curb the spread of Covid19.

Ever given

On the other hand, in the raw materials market, the prices of the main oil mixtures show losses, as the rescue authorities reported that the Ever Given ship that got stuck in the Suez Canal had already been brought out.

It should be remembered that about 12% of world trade passes through this sea route, so far more than 453 ships have already accumulated in line to pass.

Given this, the WTI starts the session trading at 61.37 dollars per barrel, which is equivalent to an increase in its price of 0.66 percent.

In the capital market, there is risk associated with the sell-off of Chinese and American technology companies, which occurred at the close of the session on Friday.

Yesterday it was confirmed that the company Archegos Capital Management LLC, was responsible for these operations of more than 20 billion dollars.

Against this background, in the United States, the main stock indices began the session with moderate losses, of around 0.20 percent.

Economic indicators and the peso

This week will be calm regarding the publication of economic indicators in Mexico, highlighting only the report on public finances and the presentation of Pre-Criteria for Economic Policy 2022, on Tuesday 30 and Wednesday 31, respectively.

The market’s attention will be on the US employment data for March.

On Wednesday the private employment report of the Automatic Data Processing Inc. (ADP) company is published, where the market estimates that the creation of about 600 thousand jobs is shown.

At the end of the week, on Friday, April 2, the non-farm payroll of the United States will be published, where the creation of 630 thousand jobs is expected.

During the session, the exchange rate is expected to trade between 20.62 and 20.92 pesos per dollar.

The euro starts the session with a depreciation of 0.03%, trading at $ 1.1790 per euro, while the pound gains 0.25% and is trading at $ 1.3824 per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds decreased by 1.0 basis point, at a rate of 1.67%, while in Mexico the yield on 10-year M bonds decreased by 2.9 basis points, to 6.76 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 2.09% 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 20.8230 at 1 month, 21.1820 at 6 months and 21.6661 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE