The peso begins the session with an appreciation of 0.47% or 10.7 cents, trading around 22.56 pesos per dollar.

The above is mainly due to 3 factors:

First factor

In the United States, initial applications for unemployment support for the week ended July 3 totaled 1,314 million, showing a decrease of 99 thousand applications compared to the previous week.

However, they continue to be above 1 million weekly for 16 consecutive weeks, a sign that the recovery in the labor market is slow. Continuing applications for unemployment support totaled 18.06 million people.

Second factor

In Mexico, June inflation stood at a 3.33% year-on-year rate and a 0.55% monthly rate, representing its largest advance for an equal month since 2000. Inside, the underlying component showed a year-on-year increase of 3.71% and monthly rate of 0.37%, boosted by the prices of non-food goods due to the economic reopening in the reference month.

The greatest upward pressures on inflation were observed in the non-core component, as energy companies rose at a monthly rate of 5.98%, driven by monthly increases in the price of high and low octane gasoline, of 8.92% and 6.67 percent. hundred.

With this, the non-underlying component was located at an interannual rate of 2.67% and a monthly rate of 0.10%. In contrast to consumer inflation, producer inflation was at a rate of -0.10% monthly during June and 2.67% year-on-year.

The evidence of inflationary pressures generates speculation that Banco de México will be more cautious in its cuts to the interest rate. Banco BASE maintains the expectation that Banco de México will continue to cut its interest rate to 4% at the end of the year, mainly due to the economic slack.

Third factor

Since Wednesday’s session, a decrease in the volatility of the exchange rate has been observed, which is related to the summer effect in the financial markets, since usually during July the flow of relevant information tends to decrease, as well as the number of participants .

However, this year, the effect could be less, since the coronavirus recession and pandemic have modified consumption patterns globally and therefore, it is less likely to take rest periods as in years of normality.

Indicators of Banxico

Peso and trade

As for economic indicators, in Germany, the trade balance for May was published showing a surplus of 7.1 billion euros, which contrasts with the surplus of 20.7 billion in May 2019.

On the other hand, yesterday the meeting between Presidents Donald Trump and Andrés Manel López Obrador was held. The state visit did not have a significant effect on the exchange rate.

The exchange rate is expected to trade between 22.45 and 22.65 pesos per dollar. The euro begins the session with an appreciation of 0.16%, trading at $ 1.1348 per euro, while the pound gains 0.36% and is trading at $ 1.2656 per pound.

Money and debt market

In the United States, the yield on 10-year Treasury bonds decreased 1.3 basis points, at a rate of 0.65%, while in Mexico the yield on 10-year M bonds increased by 0.6 basis points, to 5.80 percent.

Derivatives market

To cover a depreciation of the peso beyond 23 pesos per dollar, a call option, with an exercise date within 1 month, has a 2.12% premium 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 22.7652 at 1 month, 23.1769 at 6 months and 23.6472 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE