The Mexican peso closed the session with an appreciation of 0.93% or 18.9 cents, trading around 20.13 pesos per dollar, touching a minimum of 20.1118 pesos.

The peso appreciated in line with other currencies of emerging economies, such as the Turkish lira, which gained 2.04%, being the most appreciated currency in the foreign exchange market, and the Brazilian real, which rose 0.85%, ranking as the third most appreciated currency.

It should be remembered that the Mexican peso is one of the most liquid currencies of emerging economies in the foreign exchange market, so it is used to speculate on events in other economies, as happened today with Turkey or Brazil, although these countries do not have a commercial relationship close with Mexico.

In Turkey, the strong appreciation of the lira was due to the decision of the Central Bank to raise the interest rate from 10.25% to 15%, adopting a more restrictive stance with the aim of reducing inflationary risks, as well as anchoring expectations of inflation.

As of October, the interannual inflation in Turkey stood at 11.89%, above the inflation target in that country, which is 5 percent.

It is worth mentioning that one of the main factors behind the strong depreciation of the Turkish lira (98.66% from the end of 2017 to date) was a loss of credibility in the Central Bank of Turkey from 2018, when Turkish President Erdogan was He spoke out against raising interest rates in August of that year, which was combined with the imposition of tariffs on Turkish steel and aluminum by the Trump administration.

The peso

For comparison purposes, from the end of 2017 to date, the Mexican peso has accumulated a depreciation against the dollar of 2.39%, highlighting the importance of the credibility of the Central Bank and its autonomy.

In Brazil, the appreciation of the real is mainly due to the fact that the Minister of the Economy, Paulo Guedes, pointed out in an interview that the “explosion” of social spending has slowed down, which is aimed at reducing the levels of public debt.

If we continue to observe an appreciation of the Mexican peso that brings the exchange rate below 20.03 pesos per dollar, a movement could be observed, first towards the level of 19.80 and then towards the level of 19.40 pesos per dollar, levels not seen since the beginning of March.

In other financial markets, the results were mixed, mainly in the capital markets, where the main European indices closed with average falls close to 0.90%, while in the United States the main indices advanced moderately. The Dow Jones advanced 0.15%, the S&P 500 gained 0.39% and the Nasdaq 0.87 percent.

Pandemic

The performance of the capital market shows that the euphoria related to the effectiveness of the vaccines that have been developed to face the Covid-19 pandemic has eroded.

This is mainly due to the fact that in the short term the pandemic continues to advance and increasingly severe containment measures continue to be implemented, increasing the probability of a W-shaped recession.

Indicators of Banxico

Furthermore, the market considers it unlikely that the vaccine will be widely available at least before the second quarter of 2021.

In the session, the exchange rate touched a minimum of 20.1118 and a maximum of 20.4324 pesos, the euro touched a minimum of 1.1816 and a maximum of 1.1882 dollars per euro. Finally, the euro peso touched a minimum of 23.8728 and a maximum of 24.1757 pesos per euro.

At the close, the interbank quotes for sale stood at 20.1325 pesos per dollar, 1.3268 dollars per pound and 1.1879 dollars per euro.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE