The peso closed January with a depreciation of 2.78% or 55.4 cents, trading around 20.47 pesos per dollar, with the exchange rate touching a minimum of 19.5494 and a maximum of 20.5500 pesos, with a volatility of 13.48%, the highest for the same month since 2017.

In the last week of the month, the peso depreciated 2.47% or 49.4 cents, being the second consecutive week that the Mexican peso lost ground.

The depreciation of the peso during January was mainly due to a strengthening of the US dollar, due to:

1. Greater perception of global risk and the possibility of a brake on the global economic recovery.
2. Upward pressure on the yield of Treasury bonds, in the secondary market of the United States, which moderately raised the demand for dollars.
3. End of the euphoria in the capital market.
4. Greater uncertainty due to the fact that the ability of retail investors to influence through electronic platforms became evident.

The peso

On the other hand, the factors associated with a greater perception of relative risk in Mexico and that led to depreciation of the peso, were:

1. The sustained growth in the number of coronavirus cases
2. Slow distribution of vaccines
3. Publication of the GDP of 2020 that showed the largest annual drop since 1932.
4. The next discussion of the reform to the Bank of Mexico Law in February
5. The health condition of President López Obrador, as information on his evolution has not been released after it was revealed that he was positive for Covid19.

Risks in Mexico

It should be noted that the depreciation of the peso in the last week of January of 2.47%, is the highest since the last week of September 2020.

The maximum of the exchange rate of 20.5500 pesos per dollar was reached in the last session of the month, mainly due to a greater perception of risks with respect to Mexico.

In Friday’s session, the peso was the most depreciated currency in the foreign exchange market.

In the Chicago futures market, speculative positions in favor of the peso showed an increase in January of 2.41% (1,372 contracts), while positions against the peso decreased by 4.72%, with which net speculative positions remain at against the peso but only in 980 contracts as of January 26.

From a technical point of view, the Mexican peso is placed in the upper part of the medium-term horizontal channel, they are strong signs of an upward trend. Due to the risks associated with the pandemic and local news, currency hedges continue to be recommended.

In the month, the euro hit a low of 1.2054 and a high of $ 1.2349 per euro. Finally, the euro peso touched a minimum of 23.6562 and a maximum of 24.9284 pesos per euro.

At the close, the interbank quotes for sale were 20.4730 pesos per dollar, 1.3694 dollars per pound and 1.2132 dollars per euro.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE