Internal factors move the peso

The Mexican peso was the most depreciated currency yesterday among a varied basket of currencies against the US dollar, registering a daily loss of 1.83 percent and closing at 19.3433 units per dollar. spot.

The debate over the allocation of deputies and senators in the next Congress, which aims to give a qualified majority to Morena and its allies, which would allow it to approve the reform of the Judicial Branch, began to have greater weight in the decisions of investors, which, coupled with external events, related above all to the United States economy, led the Mexican peso to depreciate this Wednesday by 34.74 cents against the dollar, analysts explained.

According to analysts, the exchange rate entered a period of high volatilitywhich was expected around September, since the new composition of Congress and the discussion of constitutional reforms generate uncertainty. In addition, the elections and the performance of the economy in the United States, Mexico’s main trading partner, and the monetary policy of both nations, would cause the Mexican currency to lose its nickname of superweight which has been maintained for the past two years.

We knew that once September approached, greater volatility in the exchange rate was expected, due to the possibility that constitutional reforms would be approved and that this would generate uncertainty about what the economic implications would be. Without a doubt, we see that the markets are acting with caution because we do not have clear certainty about what will happen and the demand for safe haven assets is increasing, which is playing against the Mexican peso.explained Janneth Quiroz, director of economic, stock market and exchange rate analysis at Monex.

During the day, the US Department of Labor announced that it had adjusted 818,000 jobs downward between April 2023 and March 2024. The revision, according to data from Franklin Templeton, was the most significant since 1991, when the decline was 902,000 jobs, during a recession.

At the start of the session, this fueled fears of a recession in the United States, which implies a significant risk for the Mexican economy and for the inflow of dollars into the country through exports, remittances and investment.

Alfredo Coutiño, director for Latin America at Moody’s Analytics, an independent firm of the financial rating agency Moody’s, said that while it is true that some external factors have increased risk aversion, it is also true that there are internal pressures on the peso.

Political risks, such as the possible approval of constitutional changes that modify the checks and balances in Congress and the independence of institutions, have raised alarms among foreign investors, he said. On the other hand, the impression of inconsistency in the management of economic policy is reflected in a greater risk to maintain investments in the country. And this unrest is reflected in pressures on the exchange rate, Coutiño said.

Ahead of the central bankers’ meeting in Jackson Hole on Thursday, the dollar’s weakness continued and it traded at its lowest level of the year against the euro. The common currency exceeded 1.11 dollars and the pound was quoted at 1.30 units.

According to the weighted index, DXY, which measures the dollar’s performance against a basket of six currencies, it depreciated 0.25 percent, to 101.042 units, as the Federal Reserve meeting approaches, in which a reduction in interest rates is expected.

Quiroz added that the yen had a significant appreciation, which is diminishing the attractiveness of the carry trade, which consists of financing itself in Japanese currency to invest in other assets such as the Mexican peso, since it is expected that the Bank of Japan will continue to increase its rates. The national currency had been one of the beneficiaries of the carry trade from 2023.

Since the June 2 elections, the Mexican currency, one of the most traded in the world, has accumulated a depreciation of 14 percent against the dollar.

The Mexican Stock Exchange fell 0.18 percent to 53,864.73 points amid adjustments among investment banks regarding Mexican equity assets.