The peso starts the session with a significant depreciation of 1.51% or 30.8 cents, trading around 20.74 pesos per dollar, touching a maximum of 20.8168 pesos, the highest level of the exchange rate since November 6, 2020.

It should be noted that, in the session, the Mexican peso is the most depreciated currency, followed by the Turkish lira with 1.46% and the South African rand with 1.29 percent.

The peso

The depreciation of the peso is mainly the result of three factors:

First factor

The US dollar remains relatively strong, with the weighted index advancing 0.07% this morning, on expectations of higher inflation in the United States as the economy recovers and as the Joe Biden administration pushes a new 1.9 fiscal stimulus package. billions of dollars that is expected to be approved in the House of Representatives this Friday 26 to be sent to the Senate, with the intention of approving it before March 14.

In the bond market, yield rates continue their upward trend, with the 10-year rate rising 3.7 basis points to 1.37%, on the expectation that the Federal Reserve could show a less accommodative stance in the coming months. .

So far in February, the 10-year rate has risen 30.8 basis points, while the 20-year rate has risen 33 basis points, evidence of an increase in inflation expectations.

It is important to note that capital markets have also been affected by speculation around less flexible monetary policy.

In Europe, the main indices start the week losing 0.86% on average, while in the United States, the futures market points to losses of over 1.3% for issuers in the technology sector.

Second factor

Progress in the vaccination process relative to other economies.

Currencies of countries such as the United Kingdom and Chile that show relatively high vaccination rates (27.8 and 15.1 of every 100 inhabitants respectively), their currencies are among the most appreciated since February 5.

The pound sterling has appreciated 2.09%, while the Chilean peso has appreciated 3.58 percent.

In contrast, the Mexican peso is the most depreciated currency, losing 3.47% in the same period.

In Mexico, about 1.3 people have been vaccinated for every 100 inhabitants.

It is important to note that the strength of the Chilean peso is also associated with the increase in the price of copper during February, which has been close to 16%, although it cannot be ignored that there is a clear relationship between progress in the vaccination process and performance of the currency of each country against the dollar.

Third factor

The perception of risk with respect to Mexico continues to rise. Last Friday the Energy Commission of the Chamber of Deputies approved the opinion of the reform to the Electricity Law, which aims to give priority to the Federal Electricity Commission (CFE) in the electrical dispatch. Tomorrow, February 23, the reform will be discussed and put to a vote in the Lower House.

If approved, it would go to the Chamber of Senators to be published as law in April. One of the main concerns is around the T-MEC, due to possible sanctions and international lawsuits for non-compliance.

It is estimated that Mexico only has natural gas inventories for 1.5 to 3 days, so electricity shortages are not ruled out in some regions of the country, as happened last week, while in the United States they reestablish gas supply chains natural.

On the other hand, the Ministry of Finance published a decree in the Official Gazette of the Federation detailing the fiscal incentives applicable to Pemex for fiscal year 2021, which will allow the deduction of nearly 73 billion pesos and in turn reduce the Payment for Shared Utility Right of 58 to 54%.

Minerals and the peso

In the commodities market, copper peaked at $ 9,074 per metric ton, not seen since November 8, 2011.

For its part, aluminum reached a maximum of $ 2,177 per metric ton not seen since October 5, 2018, while nickel reached a maximum of $ 20,110 per metric ton not seen since May 20, 2014.

Finally, the price of zinc reached a maximum of $ 2,952.50 per metric ton not seen since April 1, 2019.

It should be noted that, during the week, the publication of relevant economic information is expected, with the revision of the 2020 economic growth figures standing out in the United States on the 25th.

For its part in Mexico, on the 24th the inflation figures for the first fortnight of February will be published, on the 25th the revision of the economic growth data for the fourth quarter and the IGAE for the month of December.

On the 25th, the figures for the Balance of Payments and the monetary policy minutes of Banco de México will be published, both at 9:00 am.

Towards the end of the week, the trade figures for the month of January will be published.

During the session, the exchange rate is expected to trade between 20.65 and 20.87 pesos per dollar.

The euro starts the session with an appreciation of 0.11%, trading at 1.2132 dollars per euro, while the pound advances 0.02% and is trading at 1.4019 dollars per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds increases by 1.5 basis points, to 1.35%, while in Mexico the yield on 10-year M bonds increases by 3.7 basis points, at a rate of 6.12 per hundred.

Derivatives market and the peso

To hedge against a depreciation of the peso beyond 21 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.80% 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 20.83725 at 1 month, 21.1741 at 6 months and 21.5927 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE