The peso starts the session with a depreciation of 0.24% or 4.8 cents, trading around 19.89 pesos per dollar, with the exchange rate touching a minimum of 19.8330 and a maximum of 19.9451 pesos per dollar.

During the overnight, the movements of the peso have been in line with the weighted index of the dollar that increases 0.32%, being the first daily increase in a week.

In the broad basket of major crosses, all currencies lose ground this morning, with the New Zealand dollar (-0.90%), the Turkish lira (-0.84%), the Norwegian krone (-0.78%) and the Australian dollar being the most depreciated. (-0.72 percent).

The mexican peso

The US dollar strengthens in a session that decreases risk appetite in global financial markets, mainly due to two factors:

First factor

Markets are watching for information about the future of the Federal Reserve’s monetary policy.

Today at 9:00 am the vice president of supervision of the Federal Reserve, Randal K. Quarles, will give a testimony in front of the House of Representatives on financial services.

On the other hand, the president of the St. Louis Fed, James Bullard, will make public comments on the economy and monetary policy, also at 9:00 am.

At 1:00 p.m., the Federal Reserve minutes will be published regarding the last monetary policy decision of April 28.

It is important to note that the Fed’s last monetary policy meeting was before the inflation and employment data for April were released, so market reaction after the minutes were released could be limited.

Second factor

Again there is nervousness over outbreaks of coronavirus cases in various regions around the world.

In India, 4,529 deaths from Covid19 were recorded in the last 24 hours, setting a new record.

Similarly, in Argentina a new maximum of cases and deaths was recorded, reporting 35,453 infections and 745 deaths from coronavirus in the last 24 hours.

On the other hand, in Malaysia, 6,075 new cases were registered in one day, the maximum in record for the country that has only vaccinated about 3% of the population.

Raw Materials

Commodities enter the session with large losses due to concerns about rising inflation globally, which has affected risk appetite in all markets.

Given this, copper shows a contraction in its price of 2.56%, nickel of 1.24%, gold 0.37%, corn of 0.99% and the WTI of 2.28 percent.

The downward pressure on the price of oil is also due to the fact that the market is attentive to the talks between world powers about a reactivation of the nuclear agreement between the United States and Iran, as it is expected that during the session the nations will make an announcement important.

It should be remembered that the reestablishment of the nuclear agreement implies that Iran will once again be able to export oil, increasing global supply. Iran has started shipping oil on the Goreh-Jask pipeline and the hydrocarbon is expected to be ready for export next month.

Other currencies

At a global level, losses are observed in the capital markets, with the main indices in Europe losing 1.40% on average, with Germany‘s DAX standing out with a decline of 1.75 percent.

In the United States, the futures market shows that the main indices will probably start the session with a loss close to 0.90% for the Dow Jones and the S&P 500 and higher than 1.3% for the Nasdaq, as greater weakness is observed for companies in the sector technological.

This may be due to a general drop in the prices of cryptocurrencies that has infected the market with pessimism.

Bitcoin loses 10.98%, while other cryptocurrencies show drops around 20 percent.

Since the close on Friday, Bitcoin shows a drop of 21.45% and since its peak on April 14, a 40.59 percent crash is observed.

During the session, the exchange rate is expected to trade between 19.80 and 19.99 pesos per dollar.

The euro starts the session with a depreciation of 0.06%, trading at 1.2215 dollars per euro, while the pound loses 0.22% and is trading at 1.4158 dollars per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds increases by 2.7 basis points, to 1.66%, while in Mexico the yield on 10-year M bonds increases by 2.7 basis points, at a rate of 6.90 percent.

Derivatives market and the peso

To hedge against a depreciation of the peso beyond 20.00 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.76% 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 19.9589 at 1 month, 20.3236 at 6 months and 20.8094 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE