The peso closed the week with a depreciation of 1.89% or 37.3 cents, trading around 20.14 pesos per dollar, being the biggest weekly drop since the week ended September 25, when the peso depreciated 5.70 percent.
During the week, the exchange rate touched a minimum of 19.7006 and a maximum of 20.1934 pesos per dollar.
In the broad basket of main crosses, the peso was the most depreciated currency during the week, followed by the pound sterling, which depreciated 1.62%, given the probability that the United Kingdom would leave the European Union without a trade agreement.
The depreciation of the peso during the week was due to a combination of factors:
First factor
The perception of risk with respect to Mexico has increased, which contributed to the peso being the most depreciated currency in the foreign exchange market.
This greater perception of risk is mainly due to the approval in the Senate of the reform to the Bank of Mexico Law that seeks to force the Central Bank to receive dollars in cash that for now are not accepted by commercial banks due to prevention schemes money laundering.
If this law is approved in the Chamber of Deputies, it would put the same international reserves at risk, it would violate the autonomy of the Central Bank’s monetary policy and the door would be opened to sanctions against Banco de México by authorities abroad.
During the week an initiative was also proposed to regulate and supervise the interest rates offered by banks, in order to promote financial inclusion.
Although they talk about commercial bank rates, this may also end up having an impact on monetary policy, since the Banco de México rate is the reference rate for the economy and by imposing rate controls, the reference would be manipulated.
Also by controlling rates, the most likely effect would be a decrease in the supply of credit and, consequently, a decrease in access to credit and some financial services. That is, an effect contrary to what is sought.
Second factor
The dollar strengthened 0.25% according to its weighted index, after three consecutive weeks down.
This is because negotiations between Republicans and Democrats in the US Congress for the approval of new fiscal stimuli have stalled, something that seemed more likely last week.
The sustained growth in coronavirus cases also threatens economic activity in the last weeks of 2020, raising the perception of risk in financial markets, mainly capital markets, which have mostly closed with weekly losses.
Jobs at IMSS
It is worth mentioning that, in the Chicago futures market, in the week between Wednesday 2 and Tuesday 8 December, the net speculative positions awaiting an appreciation of the peso decreased by 8.67% or 2,519 contracts, each of 500 thousand pesos.
Regarding economic indicators, in the last session of the week it was announced that, in November, the number of IMSS insured registered an increase of 148,719 places, being the greatest advance for a month of November since the series began.
For the first time in seven months, the total number of insured is over 20 million, amounting to a total of 20 million 051,552 insured.
Indicators of Banxico
In the accumulated of the year there is a decrease of 369,890 jobs and assuming that in December around 344,248 jobs will be lost (average of the seasonal effect in December of the last 5 years) in the year a total of 714,138 jobs would be lost.
The peso and other currencies
On the week, the euro hit a low of 1.2059 and a high of $ 1.2166 per euro. Finally, the euro peso touched a minimum of 23.8465 and a maximum of 24.4825 pesos per euro.
At the close, the interbank quotes for sale stood at 20.1402 pesos per dollar, 1.3221 dollars per pound and 1.2115 dollars per euro.
Gabriela Siller; PhD
Director of Economic-Financial Analysis.
Banco BASE
