In the week that ends, the peso closed with a depreciation of 0.40% or 9 cents, trading at 22.48 pesos per dollar, being the fifth most depreciated currency in the wide basket of major crosses, after the Indian rupee that lost 0.74%, the Israeli shekel with 0.67%, the South Korean won with 0.48% and the Argentine peso with 0.42 percent.

The peso and the context

The depreciation of the peso was mainly a consequence of three factors:

First factor

Record numbers of new infections and deaths from the coronavirus were reached in the week in the United States and Mexico.

Second factor

Expectations for a global economic recovery have deteriorated, as it is increasingly clear that a V-shaped recovery will not be seen due to the most recent outbreaks of the pandemic.

In the week, it was highlighted that the European Commission lowered its projection of economic contraction for 2020 from 7.7 to 8.7%, which implies a slower economic recovery in the second half of the year.

Inland, the economies of France, Italy and Spain are anticipated to contract about 10 percent.

Third factor

Weak economic indicators in Mexico were published, evidence of the absence of a countercyclical fiscal policy. Industrial activity stands out, which stood at a level of 71.79 points in May, its lowest level since November 1996, showing an annual decrease of 29.69%, accumulating 20 consecutive months on the decline.

Everything seems to indicate that the industrial activity of Mexico has already bottomed out, but a weak recovery is expected, since sanitary measures still remain in the country and a growth in the number of new infections is observed, which compromises the recovery.

Economy

It should be noted that the deterioration of Mexico’s macroeconomic situation is likely to lead to a deterioration in public finances in the following months, as a result of a fall in tax revenues.

This context also increases the probability that the country’s credit rating will be cut again and there is even the possibility that, in the coming months, some of the rating agencies will withdraw their investment grade.

Banxico indicator

In the Chicago futures market, the net speculative positions in favor of the peso were 14,980 contracts, each of 500 thousand pesos, observing a decrease of 5,976 contracts in the week between Wednesday, July 1 and Tuesday, July 7. This is a sign that the market remains cautious regarding the direction of the exchange rate in the future, which reduces speculation in favor of the Mexican peso.

During the week, the peso-dollar exchange rate reached a minimum of 22.1549 and a maximum of 22.8984 pesos per dollar, the euro-peso reached a minimum of 25.0340 and a maximum of 25.9203 pesos per euro in the interbank prices for sale. For its part, the euro hit a low of 1.1241 and a high of $ 1.1371 per euro.

At the close, the interbank quotations for sale were 22.4780 pesos per dollar, 1.2628 dollars per pound and 1.1301 dollars per euro.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE