The peso fell this Monday and had five sessions with losses, while the BMV advanced strongly, amid a rise in expectations that the Federal Reserve will cut interest rates in December and a local inflation figure above expectations that did not change the perspective of a monetary relaxation by Banxico.
The dollar stood at 18.5133 pesos, a depreciation of 0.15% for the national currency compared to the previous session, according to closing data from Banxico.
The depreciation of the peso occurred at the same time as the strengthening of the US dollar by 0.04% according to the weighted index, indicated the Base financial group.
The firm explained that the advance of the US currency was due to an increase in demand for dollars at the end of the month, as investment portfolios are rebalanced in a context of greater risk, particularly in the capital market.
Fed Governor Christopher Waller on Monday joined other Fed policymakers in leaving the door open to an interest rate cut at the December meeting. Last week’s statements by the influential head of the New York Fed John Williams began a shift in market expectations.
Federal funds futures traders raised the probability of a Fed taper to around 80%, a sharp turnaround from the previous week.
On the domestic front, Mexico’s general inflation rebounded in the first half of November more than expected after two fortnights of decline, impacted in part by the persistence of the underlying index according to analysts.
However, the data did not change the opinion in the market that Banxico will cut the cost of credit at its December meeting.
“There is concern about the reluctance in underlying inflation despite the economic weakness and its outlook has not improved. For its part, Banxico has assumed a neutral monetary stance and in its last statement stated that ‘it will consider cutting the reference rate’. With all of the above, we consider that December could be the last movement of this cycle of lower interest rates,” the Ve por Más brokerage said in a note.
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Along these lines, Citi predicts that Mexico’s central bank will reduce its reference interest rate by 25 basis points on December 18, although its analysts stated in a note that subsequent cuts “will depend more on the data.”
“The local inflation report for the first half of November after evaluating the comments of the members of the Banxico Governing Board in their latest minutes reinforced the expectation of a pause in the monetary normalization cycle after the December 18 meeting for which we estimate an adjustment of -25 bp in the reference interest rate,” said the Monex brokerage.
“With this, the peso finds some favorable factors to sustain an appreciation against the dollar in the medium term, although in the short term the behavior will continue to be limited by the attractiveness of the currencies of emerging economies and the expectations of investors regarding the management of the FED’s monetary policy,” he added.
BMV advances 1%
The benchmark S&P/BMV IPC stock index meanwhile closed with a preliminary increase of 1% to 62,497.97 points in line with the advances on Wall Street.
The securities of the industrial conglomerate Grupo Carso led the advance with an increase towards the close of 5.37% to 132.43 pesos, followed by those of the mining company Grupo México, which preliminarily added 4.25% to 155.67 pesos.
In fixed income, the 10-year Mexican government bond was trading with a yield of 8.84% compared to 8.82% at the previous close, while the 20-year debt offered a return of 9.417%, compared to 9.4% in the previous session.
With information from Reuters.
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