Currency Exchange Disrupts Appreciation Sessions

The depreciation of the peso this morning is the result of a moderate correction of the US dollar that advances 0.14%.

The peso begins the session with a depreciation of 0.27% or 5.1 cents, trading around 18.82 pesos per dollar, with the exchange rate reaching a minimum of 18.7313 and a maximum of 18.8566 pesos per dollar.

With the above, the peso ends a streak of 10 consecutive sessions of appreciation in the first two weeks of the year, in which it advanced 3.76% against the dollar.

The depreciation this morning is the result of a moderate correction of the US dollar, which advances 0.14% according to the weighted index, after losing an accumulated 1.13 percent for three consecutive sessions.

The depreciation of the peso and most of the currencies indicate a correction and not a change in trend, as the market continues to speculate that the Federal Reserve will be less aggressive with the pace of interest rate increases and that the United States economy could avoid a recession, something known as a “soft landing”.

Correction of The Dollar Index

The correction of the dollar index is due in part to the fact that few relevant economic indicators are published today and that financial markets will remain closed in the United States for Martin Luther King Jr. Day. Therefore, a low volume of operations is also expected , specifically during the American session.

In the exchange market, the most appreciated currencies today are: the Russian ruble with 0.82%, the Indonesian rupiah with 0.70%, the South Korean won with 0.46%, the Malaysian ringgit with 0.41%, the Taiwanese dollar with 0.40%, the New Zealand dollar with 0.28% and the Norwegian krone with 0.21%. The Indonesian rupiah reached a level of 14,983 rupees per dollar, its best level since September 20, 2022, and the South Korean won touched 1,231.67 won per dollar, its best level since April 18, 2022. The appreciations of these currencies are related to the expectation of a less aggressive Fed.

On the other hand, the most depreciated currencies today are: the South African rand with 1.39%, the Hungarian forint with 0.75%, the Chinese yuan with 0.48%, the Japanese yen with 0.41%, the Indian rupee with 0.34% and the Mexican peso with 0.27 percent.

Among relevant currencies, the British pound depreciated 0.36%, trading at 1.2183 dollars per pound, while the euro depreciated 0.15%, trading at 1.0814 dollars per euro.

In the capital market a mixed performance was observed in the Asian session, with Hong Kong’s Hang Seng advancing 0.04%, Shanghai’s CSI 300 advancing 1.56% and Japan’s Nikkei 225 losing 1.14%. In Europe, the main indices show moderate gains, with London’s FTSE 100 advancing 0.14%, France’s CAC 40 0.16% and Germany’s DAX 0.23%. Due to the fact that the markets in the United States will not operate today, little liquidity is observed in the European markets, with the DAX registering a volume of operations 21.7% below the average in the last 100 days.

In the week the World Economic Forum in Davos, Switzerland will be relevant, where comments from the President of the European Central Bank Christine Lagarde are expected.

It should be remembered that there is evidence of lower inflation globally, which also allows us to speculate that other central banks will reduce the pace of interest rate increases. The market will also be watching for monetary policy announcements, starting on January 18 with the Bank of Japan, followed on January 19 by the Central Bank of Malaysia, the Central Bank of Indonesia, the Central Bank of Norway and the Central Bank of Turkey.

The market will also be watching for comments from Federal Reserve officials ahead of the first monetary policy announcement of the year, scheduled for February 1.

Speaking between Tuesday and Friday sessions will be New York Fed President John Williams, Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker, Dallas Fed President Lorie Logan, Susan Collins, President of the Boston Fed, Lael Brainard, Vice President of the Federal Reserve, and Fed Governor Chris Waller. The participations scheduled for this week will be the last, before the monetary policy announcement, where the market estimates that the Federal Reserve will raise the interest rate by 25 base points.

During the session, the exchange rate is expected to trade between 18.79 and 18.93 pesos per dollar.

Money Market And Debt

In Mexico, the 10-year M bond rate shows an increase of 4.6 percentage points to 8.52 percent.

Derivatives Market

To hedge against a depreciation of the peso beyond 19.50 pesos per dollar, a call option, with an exercise date within one month, has a premium of 0.92% 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 18.9396 for one month, 19.4634 for 6 months and 20.0837 pesos per dollar for one year.