The peso starts the session without a clear direction, with the exchange rate hovering around yesterday’s close near 20.16 pesos per dollar, touching a minimum of 20.1042 and a maximum of 20.2135 pesos per dollar.

There continues to be upward pressure on the exchange rate, related to the risk of higher inflation in the United States, after yesterday’s April consumer inflation was published at 4.2% per year, well above the market’s expectation of 3.6 percent.

For its part, this morning the producer inflation for April was published, which stood at an annual rate of 6.2%, exceeding market expectations of 5.9 percent.

Thus, producer inflation spun eight consecutive annual advances and reached its highest level since the series began in 2010.

It is worth mentioning that part of the annual inflation is due to the low comparison base, since during April 2020 producer inflation fell 1.1% monthly and 1.5% annually.

However, additional inflationary pressures are observed, especially given the rise in commodity prices. In its monthly variation, the PPI advanced 0.6% during April, above the market’s expectation of 0.3 percent.

The mexican peso

In the foreign exchange market, the dollar weighted index increased moderately 0.03%, while, in the wide basket of main crosses, the most depreciated currencies are the Turkish lira with 0.62%, the Norwegian krone with 0.42% and the South Korean won with 0.40 percent.

On the other hand, the main oil mixtures began the session with losses, given the restart of operations of the Colonial pipeline, after the cyberattack at the weekend.

This pipeline is a key source of gasoline for the East Coast of the United States.

The WTI starts the session with a reduction in its price of 2.33%, trading around 64.54 dollars per barrel.

Interest rates

In the bond market, upward pressures on interest rates have moderated, as the 10-year Treasury bond rate falls by close to 1 basis point to settle at close to 1.68 percent.

Interest rates could show volatility after 12:00 hours, since in the United States 27 billion dollars in 30-year bonds will be auctioned and the rate is expected to be the highest since 2019, since it is currently in the secondary market the rate of the bonds of the same maturity is around 2.40%, approaching the maximum in the year of 2.5146% on March 18.

Evidence of an auction with strong demand could weaken the dollar in the minutes after noon.

The weekly employment report was also published in the United States, which showed that initial applications for unemployment support decreased by 34 thousand compared to the previous week, reaching 473 thousand units, below the market expectation of 490 thousand.

On the other hand, continuous applications for unemployment support decreased from 3.70 to 3.65 million people.

Banxico

In Mexico, today at 1:00 p.m. the announcement of Banco de México ‘s monetary policy will be announced, where it is anticipated that the Governing Board will keep the interest rate unchanged at 4.00%, although the statement could send a language of greater caution due to the inflationary pressures that became evident during April.

In Chile there will also be a monetary policy announcement at 5:00 p.m. Central Mexico and the market anticipates that the rate will remain unchanged at 0.50 percent.

Finally, in Peru, the monetary policy decision will be announced at 6:00 p.m. and the market anticipates that they will keep the reference rate unchanged at 0.25 percent.

It is worth mentioning that Chile and Peru do not face inflationary pressures as is being observed in Mexico.

During the session, the exchange rate is expected to trade between 20.10 and 20.32 pesos per dollar.

The euro starts the session with an appreciation of 0.11%, trading at 1.2085 dollars per euro, while the pound loses 0.11% and is trading at 1.4038 dollars per pound.

Money market and debt

In the United States, the 10-year Treasury yield remains stable around 1.69%, while in Mexico the 10-year M bond yield is unchanged at 7.00 percent.

Derivatives market and the peso

To hedge against a depreciation of the peso beyond 20.50 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.49% and represents the right but not the obligation to buy dollars in the aforementioned level.

On the other hand, the interbank forward for sale is at 20.2209 at 1 month, 20.5817 at 6 months and 20.0717 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE