Capital inflows and weak dollar strengthen the peso

There is also speculation in favor of the Mexican peso, which arises in a scenario of greater optimism due to the expectation that the Fed will slow down rate increases.

Gabriela Siller, director of analysis at Banco Base.

The strength of the peso in recent weeks is explained by the strong inflow of foreign capital into government bonds starting in October, as well as the weakness of the US dollar amid a wave of risk appetite, analysts explained.

In the last seven weeks, the interbank dollar has depreciated 3.28%, closing this Friday at 19.4196 pesos, according to data from the Bank of Mexico (Banxico). Just on Tuesday it touched a minimum of 19.0402 units, its lowest level since February 2020.

Janneth Quiroz, deputy director of Analysis at Monex Casa de Bolsa, highlighted that since October there has been a strong inflow of foreign capital, especially short-term instruments.

“The holding of Cetes in the hands of foreigners has already recovered 70% of the total amount that came out in 2021. In the accumulated for the year we continue to see an outflow, although this outflow is much less than what we saw in previous years (2020 and 2021 ), but in particular with regard to the appetite for short-term instruments, it has increased significantly”, the analyst stated.

Quiroz explained that the higher inflows are explained by the rate differential of 600 base points between Mexico and the United States, because the higher premium for Mexican bonds encourages the entry of capital into the country.

He mentioned that in recent weeks, there has been a greater inflow of capital to the country’s bonds because there is a greater appetite for risk, since investors see the end of the increase in rates-

Gabriela Siller, director of Analysis at Banco Base, assured that the appreciation of the peso in recent weeks has to do with the weakness of the US dollar in the last two months due to the expectation that the Federal Reserve (Fed) will moderate the increase in interest rates.

At the beginning of November it decided to increase its rate by 75 points, although in the decision statement its officials gave signs that the increase in rates could be slowed down so as not to cause a recession.

“On the other hand, there is also speculation in favor of the Mexican peso, which arises in a panorama of greater optimism due to the expectation that the Fed will slow down rate increases,” he said.

In the last seven weeks, the dollar index -which measures the strength of the US bill against six currencies- has fallen 7.26%, going from 112.68 to 104.50 units.

From its maximum in the year (114.05), which it reached at the end of September, it has fallen 8.37 percent.

On Friday, the Mexican currency fell against the dollar after better-than-expected employment data was released in the United States, raising fears that inflation could pick up and force the Fed to accelerate the pace of prices. increases in interest rates.

The peso-dollar exchange rate had an intraday rise of 1.33% or 25.40 cents, its largest increase in a session since September 23 of this year.

Peso, one of the few currencies they earn in the year

The Mexican peso is one of the few currencies that gains against the dollar so far in 2022, with an appreciation of 5.30% or 1.09 pesos. It started the year at 20.5075 units.

With Friday’s depreciation, the peso became the third highest-earning currency against the dollar (after the Russian ruble and the Brazilian real), after staying in second place for several weeks.

The ruble appreciates 16.95%, to 62 units per dollar, while the Brazilian real gains 6.30%, with the bill trading at 5.2196 reais.

Other currencies that also appreciate in the year are the Peruvian sol, which advances 3.63% in the year to 3.8407 units per dollar, followed by the Hong Kong dollar, gaining 0.09% to 7.7866 units per dollar.

In contrast, some of the currencies that lost the most in the year against the dollar are: the Colombian peso, which depreciated 17.42%, the Japanese yen, which fell 16.85%, and the Swedish krona, which fell 14.26 percent.

The pound sterling depreciates 10.18% trading at 1.2296 dollars, while the euro loses 7.89% to 1.0543 dollars each.

sebastian.diaz@eleconomista.mx