Puerto Vallarta, Mexico – The Mexican peso began today’s session with an appreciation of 0.28%, or 5.6 cents, trading around 20.34 pesos per dollar. The exchange rate touched a maximum of 20.4313 and a minimum of 20.3225 pesos per dollar. This appreciation comes in tandem with a 0.09% drop in the U.S. dollar, amid speculation that the Federal Reserve will cut interest rates in its upcoming decision on December 18.
The weakening of the dollar is primarily due to comments from Federal Reserve officials. Yesterday afternoon, Fed Governor Christopher Waller expressed his inclination to support an interest rate cut in December, citing that monetary policy is significantly restrictive and the labor market is in equilibrium. Additionally, New York Fed President John Williams commented that over time it would be appropriate to continue moving toward a neutral monetary stance.
The market is closely watching for further comments from Fed officials during today’s session. At 11:15 a.m., an interview with San Francisco Fed President Mary Daly is expected. Fed Governor Adriana Kugler will give a lecture on the labor market and monetary policy at 11:35 a.m., and at 12:30 p.m., Chicago Fed President Austan Goolsbee will participate in a moderated discussion on monetary policy.
Global Market Focus
Another factor contributing to the peso’s appreciation is the shift in market attention away from Mexico to other global issues. Notably, former U.S. President Donald Trump threatened to demand the BRICS countries’ commitment not to create a new currency to replace the U.S. dollar; otherwise, he would impose a 100% tariff on imports from those countries. This statement has garnered significant attention in international markets.
Political uncertainty in France has also captured market interest. Lawmakers from the right-wing National Rally filed a no-confidence motion yesterday, joining a similar effort initiated by the left-wing New Popular Front coalition. The motion is expected to be voted on before Thursday, which could dissolve Prime Minister Michel Barnier’s government due to a failure to reach an agreement on approving the 2025 budget.
In other relevant news, the Chinese government announced a ban on exports to the United States of metals used for the manufacture of semiconductors, according to the Ministry of Commerce. This move is in response to restrictions imposed by the U.S. government on the export to China of semiconductor manufacturing technology, specifically targeting 140 companies. These measures are seen as efforts to curb China’s technological and military development and are part of the ongoing trade tensions between the two countries. As a result, the Chinese yuan reached a rate of 7.2972 yuan per dollar today, its weakest level against the dollar since November 13, 2023.
Currency Movements
In the broad basket of major currencies, the most appreciated today are:
- Russian ruble: 1.06%
- Israeli shekel: 0.59%
- Chilean peso: 0.50%
- Brazilian real: 0.41%
- Norwegian krone: 0.34%
- Mexican peso: 0.28%
The most depreciated currencies are:
- Indonesian rupiah: -0.25%
- Malaysian ringgit: -0.22%
- Swedish krona: -0.19%
- Chinese yuan: -0.16%
- Turkish lira: -0.09%
- Japanese yen: -0.08%
Global Equity Markets
The global equity markets are showing widespread gains, supported by issuers in the technology sector. In the Asian session:
- Japan’s Nikkei: Gained 1.91%, marking the largest advance since November 6.
- Hong Kong’s Hang Seng: Gained 1.00%, marking three consecutive sessions of gains.
- Shanghai’s CSI 300: Advanced 0.11%, also marking three sessions of gains.
In Europe:
- STOXX 600: Recorded a gain of 0.42%.
- French CAC 40: Advanced 0.32%.
- London’s FTSE 100: Gained 0.70%.
- German DAX: Advanced 0.19%, reaching a new historical maximum of 20,038.01 points.
In the U.S. futures market:
- Dow Jones: Recorded a slight loss of 0.01%.
- Nasdaq 100: Advanced slightly by 0.01%.
- S&P 500: Gained 0.06%.
Economic Indicators
Turkey: Consumer inflation stood at an annual rate of 47.09% in November, slowing from 48.58% in October. Monthly inflation was 2.24%, down from 2.88% in October. The slowdown increases bets on a possible interest rate cut in Turkey, as inflation approaches the Central Bank of Turkey’s expectation for 2024 of 44%.
Mexico: The monthly indicator of gross fixed capital formation showed a monthly contraction of 0.79% in September, following a fall of 2.23% in the previous month. This results in an annual contraction of 2.29%, the worst drop since February 2021. However, the indicator still registers accumulated growth in the first nine months of the year of 5.52%.
The monthly contraction in September was mainly due to declines in non-residential construction investment (-4.47%) and in machinery and equipment other than transport (-3.60%), the largest drop since May 2020. At an annual rate, non-residential construction stands out with a contraction of 12.70%, the largest since October 2020.
Private consumption showed a monthly contraction of 0.28% in September, the first drop since June, according to seasonally adjusted figures. The contraction is entirely due to the consumption of imported goods, which registered a monthly drop of 4.14%, the largest since March 2022. The decrease in imported goods consumption is associated with the depreciation of the peso against the dollar during the second half of the year.
Labor Market
The National Survey of Occupation and Employment (ENOE) for October 2024 indicates that the employed population increased by 446,000 people, reaching a total of 59.87 million. The unemployed population decreased by 254,000, falling to 1.54 million. Thus, the Economically Active Population (EAP) rose from 61.21 million in September to 61.41 million in October.
With the increase in the EAP and the decrease in the unemployed population, the national unemployment rate fell from 2.71% in September to 2.48% in October, the lowest rate on record since the series began in January 2005. The urban unemployment rate also reached a historic low of 2.79%.
The underemployment rate, measuring the percentage of the employed population needing more working hours, increased from 7.94% in September to 9.30% in October, the highest level since February 2022.
Exchange Rate Expectations
The exchange rate is expected to range between 20.24 and 20.43 pesos per dollar during the session.
Money Market and Debt
In the United States, the yield on 10-year Treasury notes rose 1.7 basis points to 4.21%.
Derivatives Market
To hedge against a depreciation of the peso beyond 21.00 pesos per dollar, a call option with an exercise date within one month has a premium of 1.20%, representing the right—but not the obligation—to buy dollars at that level. The interbank forward rates are:
- One month: 20.4282 pesos per dollar
- Six months: 20.8879 pesos per dollar
- One year: 21.4180 pesos per dollar
