The peso rises 19 cents against the dollar

The Mexican peso began the week with an appreciation of 0.88% or 18.6 cents, trading around 21.09 pesos per dollar, after hitting a minimum of 21.0402 pesos, a level not seen since March 11.

In the session, the Mexican peso was the most appreciated currency, followed by the Brazilian real that advanced 0.87% and the Israeli shekel with 0.71 percent.

The peso

The appreciation of the peso was mainly due to 3 factors:

First factor

A general weakening of the US dollar against its major crosses, with the dollar weighted index declining by 0.30 percent.

This could be due to movements in the foreign exchange market in anticipation of the Federal Reserve’s monetary policy decision, which will be released this Wednesday.

The market anticipates that the Fed will maintain a highly accommodative stance for a long time.

Second factor

An increased appetite for risk in some financial markets due to the possibility that a coronavirus vaccine will be approved soon.

Over the weekend, pharmaceutical company AstraZeneca announced that they would resume testing for a vaccine it is developing with the University of Oxford.

Tests had previously been suspended on suspicion that a patient had had adverse effects from the vaccine.

Additionally, the pharmaceutical company Pfizer pointed out that it is likely that in the United States some drug against Covid-19 could begin to be distributed before the end of the year.

Third factor

An auction of 7.5 billion dollars was announced since last week by the Bank of Mexico together with the Ministry of Finance, with the use of the swap line with the Federal Reserve. Tomorrow, September 15, 5 billion dollars will be auctioned, while next Monday, September 21, the rest of the 2.5 billion dollars will be auctioned, both with a term of 84 days.

Indicators

It is important to mention that the annualized daily volatility of the exchange rate in 2020 has been the highest since 1995.

During the week there will be several additional events relevant to the foreign exchange market, such as the monetary policy announcements from the Bank of England and the Bank of Japan, both on September 17.

Industrial production and retail sales data for the month of August will also be published in the United States and China, while retail sales and the monthly employment report for the same month will be published in the United Kingdom.

Indicators of Banxico

These indicators are relevant because they will allow the market to measure whether the economic recovery extended into August or whether it was a temporary «rebound effect» after the paralysis of economic activity during the period of confinement.

In the session, the exchange rate touched a minimum of 21.0402 and a maximum of 21.3081 pesos, the euro touched a minimum of 1.1832 and a maximum of 1.1888 dollars per euro. Finally, the euro peso touched a minimum of 24.9826 and a maximum of 25.2377 pesos per euro.

At the close, the interbank prices for sale stood at 21,1012 pesos per dollar, 1,2853 dollars per pound and 11,863 dollars per euro.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE