The peso wins against the dollar: it quotes at 21.85

The peso begins the session with an appreciation of 0.32% or 8.2 cents, trading around 21.85 pesos per dollar, before a return of the weakness of the US dollar against its main crosses.

If this trend continues, the exchange rate is likely to approach the key support of 21.50 pesos per dollar.

The dollar-weighted index shows a 0.19% decline, while market participants are waiting for the Federal Reserve to make its monetary policy announcement at 1:00 p.m., where it is likely to keep the exchange rate unchanged. interest in your minimum range of 0.00-0.25 percent.

The announcement will be preceded by a press conference by the President of the Federal Reserve, Jerome Powell, in which he will present his vision on the economy and the policies that the bank will apply in the long term.

The depreciation of the dollar is due to the fact that, in addition to the expectation of a highly accommodative monetary policy in the United States, the markets anticipate that other regions of the world could have a more accelerated economic recovery, in particular Europe.

This morning the euro shows an appreciation of 0.10%, trading at $ 1.1726 per euro, reaching a level of 1.1770 during the overnight, being close to the maximum in the year.

For its part, the pound starts with an appreciation of 0.22%, trading at $ 1.2961 per pound, accumulating an advance of 1.32% in the week.

The peso and the Fed

Because today is the day of the announcement of monetary policy in the United States and the preliminary growth estimates of the United States and Mexico are published tomorrow, the performance of the commodity market is mixed.

The price of gold is trading laterally, showing a 0.12% drop and standing at $ 1,956.20 per ounce. In the following sessions, the price is likely to continue its upward trend, overcoming the barrier of $ 2,000 per ounce.

For its part, the price of WTI oil registers an advance of 1.15%, reaching $ 41.51 per barrel, although this is mainly a correction to yesterday’s losses and a reaction to the weakness of the dollar this morning.

Regarding economic indicators, in Mexico the Quarterly Indicator of State Economic Activity (ITAEE) of 1Q 2020 was released, with falls in 15 of the 32 states of the country. It should be noted that the pandemic only had a partial impact on the economy in that quarter.

The greatest quarterly decreases were observed in the states of Coahuila (3.87%), Jalisco (3.39%) and Baja California Sur (3.12%). Mexico City showed a decrease of 1.74%, while the state of Nuevo León did not fall at a quarterly rate, advancing 0.13 percent.

At an annual rate, the Nuevo León economy observed a decline of 1.17%, due to the weakness of the state at the end of 2019.

Mexican economy

In contrast, the states that registered the greatest advances were: Tabasco (3.61%), Oaxaca (3.00%) and Sonora (2.67 percent).

The dynamism in the economic activity of Tabasco stands out, since since the second half of 2019 it maintains a behavior opposite to that of most states, which could be related to the greater public investment that has been allocated to it.

It should be remembered that the country’s GDP in 1Q2020 registered a quarterly drop of 1.2%. The exchange rate did not react to the publication of the ITAEE.

On the other hand, in the United States, the advanced data of the trade balance were published, corresponding to June.

Exports grew at a monthly rate of 13.9% and imports advanced by 4.8% monthly, according to seasonally adjusted figures.

On August 5, the official information will be published, which updates the trade by country, including Mexico.

Indicators of Banxico

During the session, the exchange rate is expected to trade between 21.70 and 22.00 pesos per dollar. The euro begins the session with a moderate appreciation of 0.13%, trading at $ 1.1731 per euro, while the pound is up 0.31% and is trading at $ 1.2972 per pound.

Money and debt market

In the United States, the yield on 10-year Treasury bonds decreased 0.5 basis points, at a rate of 0.57%, while in Mexico the yield on 10-year M bonds began with little change compared to yesterday’s close, ranking at 5.70 percent.

Derivatives market

To hedge against a depreciation of the peso beyond 22.50 pesos per dollar, a call option, with an exercise date within 1 month, has a premium of 1.46% and represents the right but not the obligation to buy dollars in the level mentioned above.

On the other hand, the interbank forward for sale is at 21.9644 at 1 month, 22.3503 at 6 months and 22.7976 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE