The peso starts the session with little change compared to yesterday’s close, showing an appreciation of 0.05% or 1 cent and trading around 20.04 pesos per dollar, with the exchange rate touching a minimum of 20.0203 and a maximum of 20.0858 pesos per dollar, that is, a variation interval of only 6.5 cents, for now the lowest in a business day since January 17, 2020.

The stability of the exchange rate during the overnight remains proof of the caution of market participants who are awaiting relevant economic events and indicators as of today.

At 1:00 p.m. (CT) the Federal Reserve’s monetary policy announcement will be announced, where it is expected that the rate will remain in the minimum range of 0.00-0.25% and that the current rate of purchase of bonds.

At 1:30 p.m., Jerome Powell will give a press conference.

No significant changes in the language of the release or press conference are anticipated and the expectation is that the US dollar will remain stable.

Pro-dollar pressure could be seen if Jerome Powell sends a signal that monetary policy could become tighter due to the risk of inflationary pressures in the United States.

However, a shift to a more restrictive guide is unlikely today.

The peso

For his part, at 8:00 p.m. (CT), Joe Biden will give a speech in Congress, where he is expected to talk about his progress during the first 100 days of government.

In addition, he will introduce his new $ 1.8 billion plan «The American Families Plan» to improve education and the day care system. This package is expected to be accompanied by an increase in taxes on capital gains for people who earn a million dollars or more a year, increasing it from 20% to about 40 percent.

Finally, tomorrow the GDP of the United States corresponding to the first quarter is published, which Grupo Financiero Base estimates at an annualized rate of 8.0%, equivalent to a quarterly rate of 1.9 percent.

If confirmed, it could generate a wave of optimism in global financial markets during Thursday’s session.

Treasury bond

It is important to mention that this morning the dollar weighted index increased 0.08%, observing a mixed performance in the foreign exchange market, where a defined pattern is not observed, since currencies from emerging economies such as currencies from advanced economies and safe haven currencies are losing and gaining.

In the bond market, the 10-year Treasury bond rate shows an increase of 1.3 basis points, reaching 1.63 percent.

The performance of this rate will depend on Powell’s comments at the press conference after the monetary policy announcement.

Pandemic

In terms of relevant news, global Covid-19 cases have risen for the ninth consecutive week at a record rate of 5.7 million. According to the World Health Organization, 38% of new cases in the last week were registered in India.

Today, a new peak of infections was reported in India with 360,960 new infections.

For now, the performance of the markets is not associated with the news about the advance of the coronavirus, but new episodes of risk aversion associated with the pandemic cannot be ruled out.

US international trade

Regarding economic indicators, this morning in the United States the report on advanced trade indicators for March was published.

In the third month of the year, a merchandise deficit of 90.6 billion dollars was registered, increasing by 4.0% with respect to February and being the largest commercial deficit of goods on record.

In the interior, exports of goods reached 142 billion dollars, increasing at a monthly rate of 8.7%, while imports were 232.6 billion dollars, advancing 6.8% monthly.

The complete figures for the trade balance of goods and services as of March will be published on May 4.

During the session, the exchange rate is expected to trade between 19.98 and 20.09 pesos per dollar.

The euro starts the session with a depreciation of 0.21%, trading at 1.2066 dollars per euro, while the pound loses 0.28% and is trading at 1.3874 dollars per pound.

Money market and debt

In the United States, the 10-year Treasury yield increased 1.1 basis points, to 1.63%, while in Mexico the 10-year M bond yield remained unchanged at 6.79 percent.

Derivatives market and the peso

To hedge against a depreciation of the peso beyond 20.50 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.91% 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 20.0786 at 1 month, 20.4367 at 6 months and 20.8999 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE