The bets in favor of the peso in Chicago spin for 3 weeks

For the third consecutive week, positions in favor of the appreciation of the Mexican peso against the dollar shot up on the Chicago Mercantile Exchange (CME) to its highest level since March 10, 2020, before the World Health Organization (WHO) declared the health emergency by Covid-19 as a pandemic.

The speculative net positions of the peso in the Chicago futures market closed at 59,614 net long contracts, at 500,000 pesos each, in the week between Wednesday, November 2, and Tuesday, November 8.

The number was 35.34% or 15,569 more contracts to the 44,045 registrations of the previous weekly close. With this, it marked its best level since the week ending March 8, 2022, when 53,000 net long positions were reported.

Although it is also one of the best levels seen since March 10, 2020 when 112,500 contracts were reported betting on the appreciation of the peso, explained the director of Economic and Financial Analysis at Banco Base, Gabriela Siller.

The deputy director of Analysis at Monex Casa de Bolsa, Janneth Quiroz, considered that the change in the sentiment of investors or speculators towards the peso in the Chicago market is explained by the expectation that the United States central bank will reduce the magnitude of increases in the target interest rate.

The US Federal Reserve (Fed) is no longer expected to increase the target rate by 75 basis points, but by 50 basis points for the December meeting. It is expected to end at 5% at the end of 2022.

Janneth Quiroz also explained that the positions in favor of the peso are explained by the differential between the interest rates of the Bank of Mexico and the Fed, which continues to be maintained at 600 base points, and the evolution of inflation in the American Union.

“Sentiment has turned quite favorable for the Mexican currency and coincides with the week when the inflation data for October in the United States was released (which stood at 7.7% at an annual rate), which showed a significant drop, which also led to the reinforcement of the expectation that the Fed will slow down the magnitude of the interest rate hikes”, explained Janneth Quiroz.

The three-week streak in favor of the Mexican currency stands out, after net short positions were maintained for 19 consecutive weeks because there was a conviction in the Chicago futures market that the Mexican currency was going to depreciate.

Net long positions are recorded when the peso is going to appreciate against the dollar and short when it is believed that it is going to weaken.

Gabriela Siller said that the positions awaiting an appreciation of the peso in the Chicago futures market are consistent with the appreciation of the peso, which stands at 19.3406 units per dollar.

Dollar Gains Ground as Market Focuses on Fed

The dollar rose against the euro and the yen on Monday, but eased back from all-day highs, with investors betting on a slower pace of rate hikes from the US Federal Reserve.

The dollar index rose after falling 4% last week, its biggest weekly decline since March 2020, following data showing that US consumer prices rose less than expected in October and prompted bets on a slowdown. of rate hikes.

While the dollar appeared to benefit in the early hours of investor reading of Fed Governor Christopher Waller’s weekend comments, it lost ground as the session progressed as investor hopes for slower gains They were renewed by comments from Fed Vice Chair Lael Brainard.

Waller said on Sunday that last week’s inflation data was “just one point of data” and that similar readings would be needed to convincingly show that inflation is slowing.

Brainard stressed in an interview with Bloomberg that the Fed has more work to do, noting that it may slow its pace of tightening soon as it is trying to determine how high borrowing costs need to be and how long they need to stay there to reduce inflation.

“Markets are starting to factor in the end of the Fed cycle,” said Shaun Osborne, chief currency strategist at Scotiabank, noting that last week’s inflation reading is a strong basis to believe they may turn lower. . This helped the dollar index, which measures the performance of the greenback against a basket of six strong currencies, rose 0.93% to 107.27 units, before falling to 106.73 units.

The euro was down 0.01% at $1.0342, after hitting a three-month high, while sterling fell before Britain’s Chancellor of the Exchequer announced a budget plan on Thursday that is expected to set out tax hikes and spending cuts. The pound was down 0.55% at $1.1770, after rising 4% in the previous two sessions.

The yuan rose to a two-month high against the dollar after the central bank raised its official guidance to the most since 2005 and there was a broad boost in Chinese market confidence over moves to help its beleaguered real estate sector. (Reuters)

judith.santiago@eleconomista.mx