Investors in Chicago bet against the peso

Investors on the Chicago Stock Exchange (CME for its acronym in English) stopped betting on the strength of the Mexican peso last week, after having maintained positions in favor in the last 10 weeks. Contracts ended at 26,400 against between June 13 and 17, their lowest level since December 7, 2021.

Last week’s drawdown was 59,100 contracts, the CME report shows, although net short positions did not turn negative from the week of March 14-18 this year.

”The results of the last week of the net positions of futures speculators of the Mexican peso in the Chicago market had a very important drop, in such a way that now they are already net short, which would be showing us that investors are waiting that the peso continues to depreciate and that the dollar continues to strengthen”, explained Janneth Quiroz, deputy director of Analysis at Monex Casa de Bolsa.

The foregoing, he continued, as the futures markets bet again on an increase of 75 base points in the next monetary policy decision, by the United States Federal Reserve (Fed), with which, in principle, it would make it much more attractive to invest in dollars and, possibly, these increases will cause uncertainty in emerging markets.

The number of contracts had a strong adjustment last week, commented Alain Jaimes, economic analyst at Signum Research, which reflects that “investors are being pessimistic, despite the efforts of the central banks of emerging economies to make their currencies do not lose competitiveness.

The fall in peso contracts on the Chicago Mercantile Exchange may also be the result of the uncertainty derived from the pandemic, the war between Russia and Ukraine, in addition to the risks of an economic recession.

”In such scenarios, portfolio restructuring leans towards lower risk assets and the peso, although it is a liquid currency and stands out among its emerging peers, is considered a risky asset. In that sense, the reduction in the number of contracts could respond to such effects, despite the monetary movements that have been implemented”, pointed out the economist from Signum Research.

influenced by high inflation

Janneth Quiroz highlighted that in Chicago the bets against the peso took place after the May inflation data was released, which was “quite surprising”, since it hit a maximum of more than 40 years, so the markets began to discount the effect, while the Fed increased the federal funds rate by 75 basis points and not by 50 basis points as expected before the inflation figure.

Consumer prices in the United States increased 8.6% last May, compared to the same period in 2021. Meanwhile, the FED increased the reference interest rate by 75 basis points to contain inflation, leaving it in a range between 1.5% and 1.75% percent.

With the historical decision of the rise of 75 base points in the reference rate of the US central bank, the action carried out by the Bank of Mexico (Banxico) will be important, in the meeting this Thursday, June 23, added Jannet Quiroz, since anticipates that the Mexican monetary authority will have no other option but to increase its interest rate by the same magnitude this coming week.

Going forward, Mexico’s monetary policy decision will be closely linked to the interventions of the Federal Reserve, in order to maintain the spread between the rates of the United States and Mexico.

pressures for weight

Specialists considered that the scenario is getting complicated and generated pressure for the peso, after last week it ended with a depreciation of 1.90% or 37.89 cents against the dollar, trading around 20.3589 units per greenback, data from Banxico show.

While last week, the dollar index ended with an advance of 0.79%, standing at 104.71 units.

Janneth Quiroz explained that it is very possible that the peso will continue to adjust and depending on how the inflation data evolves, the impact on the exchange rate would be.

“Greater volatility is expected for the peso and, in my opinion, now we will have much greater uncertainty and volatility every time we have a monetary policy meeting and every time inflation data is published, especially in the United States. We will be seeing something similar to what we saw in the last week, after the May inflation data came out,” he said.

For his part, the economic analyst at Signum Research considered that it will be difficult to see that the peso can break the floor of 20 units again, since “it is more likely that it will touch 21 units at some point this year.”

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