The Mexican peso closed the week with an appreciation of 1.15% or 23.2 cents, trading around 19.93 pesos per dollar, being the third consecutive week that it gained ground against the dollar, in which it accumulated an advance of 3.18 percent.

The exchange rate touched a weekly maximum of 20.2427 and a minimum of 19.8909 pesos per dollar.

Among the main crosses of the dollar, the peso ranked as the eighth most appreciated currency, behind the Russian ruble (+ 2.16%), the South African rand (+ 2.13%), the Brazilian real (+ 1.79%), the Norwegian krone (+ 1.57%), the New Zealand dollar (+ 1.56%), the Australian dollar (+ 1.42%) and the Turkish lira (+ 1.33%), all currencies of emerging economies or closely related to the performance of the commodity market, that normally advance when there is optimism.

The dollar weighted index lost five days a week, accumulating a 0.70% decline, the highest since the third week of December 2020.

Peso

The weekly appreciation of the peso, due to the weakness of the dollar, was due to the following factors:

First factor

Optimism and risk appetite prevailed in global financial markets.

In the United States, positive economic indicators were published, exceeding expectations, with the most notable being the retail sales that grew at a monthly rate of 9.8% in March and the initial requests for unemployment support from the previous week, which stood at 576 thousand, its lowest level. since before the initial impact of the pandemic was seen in March 2020.

Other financial markets reacted positively, mainly the European capital market, where the main indices advanced around 2% on average during the week.

In the United States, the main indices also advanced about 1% on average, reaching new all-time highs.

Second factor

In the commodities market, significant gains were observed, mainly in energy prices, with the WTI advancing about 6.6% during the week, trading at 63.2 dollars per barrel, while the price of natural gas rose 6.25% and Among industrial metals, copper rose 3.27% and steel 4.12 percent.

Third factor

Despite the optimism, speculation about the future of inflation and interest rates in the United States was contained, after Fed Chairman Jerome Powell reiterated that the Federal Reserve does not see conditions for adjustments to the interest rate. interest and that, before considering rate adjustments, the bond purchase program will be reduced.

Powell also mentioned in the middle of the week that most monetary policy makers do not see increases in the target rate until 2024. In the bond market, the interest rate on 10-year Treasury bonds showed a decline of 8.6 basis points, standing at 1.57%, which contributed to the appreciation of most currencies.

From a technical point of view, the exchange rate pierced the key support of 20.00 pesos per dollar and hit a low of 19.8909 pesos per dollar, opening the door to further appreciation of the peso.

The exchange rate could appreciate towards levels close to 19.70 pesos per dollar, last seen in January and the possibility that it may approach the minimum in the year of 19.5494 pesos on January 21 is not ruled out.

It should be remembered that the recent appreciation of the peso is mainly the result of the weakness of the US dollar and not of factors specific to the Mexican economy, where factors continue to accumulate that may raise the perception of risk in the following months.

Hydrocarbons Law and the peso

Among the factors that can generate nervousness are the approval this week in the Chamber of Deputies of the reform to prohibit outsourcing, which is now pending approval in the Senate and which has the ability to slow down the process of job recovery.

Another factor was the approval in plenary session of the Chamber of Deputies of the opinion on the reform of the Hydrocarbons Law, which would severely inhibit investment in the energy sector if approved by the Senate.

An additional element is the federal and local elections of June 6, since normally in the month prior to the elections, temporary upward pressures for the exchange rate tend to be observed, which is estimated could take the exchange rate to levels between 20.50 and 21.00 pesos per dollar in May.

Exchange rate

An additional risk factor for the Mexican economy is the perception of internal public policies from abroad.

At the end of the week, the United States Department of the Treasury published a report on the macroeconomic and exchange rate policies of the main trading partners of the United States, where, for the first time, Mexico was included in a list of countries that will be monitored, without being classified as a manipulative country of its currency.

However, the report highlights that the costly support of the Mexican government to state companies that have lost market share reduces the availability of resources for essential spending and limits productive investment and social protection.

According to the report, government policies to increase dependence on fossil fuels may lead to a decrease in energy exports from the United States to Mexico, widening the United States’ trade deficit with Mexico.

Although Mexico is not expected to be classified as a currency manipulator country, it is clear that the anti-market policies of the current administration are being closely watched by Mexico’s main trading partner, raising the risk of measures being implemented. protectionist trade.

On the week, the euro hit a low of 1.1871 and a high of $ 1.1995 per euro. Finally, the euro peso touched a minimum of 23.8176 and a maximum of 24.0775 pesos per euro.

At the close, the interbank quotes for sale stood at 19.9285 pesos per dollar, 1.3837 dollars per pound and 1.1982 dollars per euro.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE