In just over two months, the Mexican peso has depreciated 7.89%, from 19.9800 pesos per dollar on September 22 to 21.5564 units in which it closed this Thursday, according to Banco de México (Banxico).
Only in the session this Thursday, the local currency lost 0.51% or 10.92 cents against the dollar, which accumulated a streak of six consecutive days of depreciation against the greenback, a total of 4.22% or 88.76 cents in that period.
The Mexican currency is at its worst level since October 2, when it traded at 21.6700 pesos per dollar.
James Salazar, deputy director of economic analysis at CIBanco, explained that there are four factors that have put pressure on the Mexican peso, among them the aversion to risk due to the expectation of an interest rate hike by the United States Federal Reserve (Fed) and the increase of cases of Covid-19 infections in Europe.
“One is the issue that more and more traders are incorporating into portfolio rearrangements the bet that the Fed would have to raise interest rates twice next year. This is a central element that has put pressure on the peso, ”he said.
In addition, Salazar indicated, the feeling of aversion to risk generated by the new wave of infections in Europe is added, which raises doubts about confinement measures among the population, which could slow down the global economic recovery.
Among other factors, “there was a contagion effect due to the depreciation of the Turkish lira, due to the comments of the President of Turkey on his monetary policy decisions. In addition to the doubt that arises with the uncertainty of the position of governor of Banxico ”, he specified.
The decline of the Mexican peso was accentuated this Thursday after the publication of the revised figures of the Gross Domestic Product for the third quarter, as they showed a greater contraction than the one initially published, which moderately increases the perception of risk with respect to Mexico.
Additionally, “inflation is twice the central bank’s target and the country that is lagging behind in economic recovery demands a more cautious outlook in the short term,” wrote Leonardo Pellandini, equity strategist at Julius Baer, in a report.
From September 22 to date, the dollar index, which measures the strength of that currency against a basket of six benchmark currencies, has increased 3.56% from 93.46 to 96.79 points.
“These elements make investors get out of risky assets, such as emerging currencies, including the Mexican peso. Looking for safe haven assets, including the dollar, ”said James Salazar.
James Salazar commented that “the exchange rate could be pressured up to 21.80 pesos per dollar, and then reassure its operations, to be at 21.30 units. Without ruling out the possibility of reaching 22 pesos per dollar ”.
“It is likely that there will be an increase in speculative net positions against the Mexican currency, the reality is that it is a generalized phenomenon, and with the behavior we have observed in recent days, it will be justified that there is a greater bet against the peso” , he pointed out.
Until Friday, November 19, the speculative net positions of the peso on the Chicago Stock Exchange stood at 47,700 contracts against the peso, thus accumulating more than seven months betting on the depreciation of the Mexican currency. (With information from Agencies)