The peso strengthens in October and is the "fault" of the Fed; we tell you why

Wall Street expects the central bank to "gobble up" up to 360 billion dollars in bonds and keeping rates low, which favors the differential between the peso and the dollar.

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The peso records an October gain. So far this month, the Mexican currency earns 54.25 cents to the dollar in the wholesale market, this represents an appreciation of 2.75% and moves away, for the moment, the fears that the markets have almost as a tradition every time the tenth month of the year arrives, due to the history of financial tragedies recorded in that period.

Although there are still two weeks left before the end of the month,
if something does not happen that changes the trend, this positive run of our currency could be linked to a factor
external that for at least 2 years maintains a strong influence on the
trajectory of the exchange rate in our country
, this factor is the
difference in interest rates between the money markets of Mexico and States

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However, an additional factor that now strengthens the peso would have also come into play, even against the context of unfavorable news related to the Mexican economy; This factor is neither more nor less than the Federal Reserve (Fed), the powerful US central bank that, without intending it, would have carried out actions for the benefit of the local currency.

What did the Fed do?

Since the middle of last month, the American commercial banks began to report problems
of liquidity
In your daily operations. This phenomenon was identified by
the central bank of that country that injected resources immediately, technically
Calls these types of operations “asset purchase”, because the Fed buys securities from
government held by banks, giving them liquidity in return.

For example, only the
on September 24 the Fed injected the amount of 105 into the banking system
one billion dollars
(to size, we can indicate that this figure
It represents just over 58 percent of the dollar balance of the reserves
internationals of our country, which at the end of last week were located
in 180 billion dollars); this amount is said easy, but it is a sum
impressive that not just any central bank handles.


Just last year, the
Fed disrupted its asset purchase mechanism that implemented a decade
before in response to the virulent financial crisis
unleashed after the
collapse of the mortgage sector, official figures indicate that this type of
operations came to represent an amount of 4 billion dollars (3.33
times the value of Mexican GDP that currently stands at 1.2 billion

With the return of liquidity to the markets, the Fed evidently seeks that the trajectory of local interest rates is not modified, aims to remain bearish bias and of course within its expected range of 1.75 to 2%.

To understand: These are the routes that the dollar would follow to grow against the peso

We are not officially in a repurchase period of
assets, although the Fed has not denied such operations, on the contrary,
the president of the institution, Jerome Powell, has said that they are
operations that the agency performs within its strategies to maintain the
Order in the markets. In addition, he noted that the
Fed analyzes and does not rule out the return of asset purchase mechanisms in
if necessary, analysts expect the Fed to formalize the
I come back every time in other latitudes like Europe, the Central Bank of the
region had to perform similar operations again to provide liquidity
to your payment system
, also interrupted last year.

The central bank's action is so expected that analysts of
Wall Street, cited by Bloomberg, said they expect the Fed
"Engulfs" up to 360 billion dollars in assets, same figure
that will end up in the investment markets of the United States and elsewhere
of the world.


How does everything impact
this in weight?

This liquidity in the US financial markets
look for investment options, within your country and also outside it,
although ultimately capitals become more selective. Mexico, with everything and its problems, is one of
preferred countries
, it has been since many years ago when not even
there were free trade agreements between both nations, and it still is now
in full globalization.

A determining factor for this preference of capital is the famous spread of interest rates, that is, the difference between the interest rates of Mexico and the United States, The wider this difference, because Mexican rates are generally higher, the more attractive it will be for US investors to bring their money to Mexico.

Peso and dollar

In conclusion

1) The injection of liquidity in the financial markets
Americans has increased the call Carry
between the financial places of Mexico and the United States,
US investors have a profit of at least 550 points
basis between the investment rate of your country and the one obtained in Mexico, an entire impossible financial business of

2) Obviously, this scenario will not last forever. However, it can be maintained for a while.
prolonged as the previous occasion happened. As we noted, elsewhere
of the world central banks also inject money into their banking systems
and financial (China, Europe); it seems that there is a coordinated action of
monetary institutions to keep interest rates low and with their
decreasing trend

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3) According to some analysts, the peso is in a
“interesting” level, approaching less than 19 units per dollar;
for them, who closely follow the market, if the current scenario is maintained, we are likely to see in a few weeks
a lower exchange rate.

4) The big question is: will it be good or bad for weight?
As long as the speculation does not grow too much as in other times, the market
It will be more or less calm. It is a fact
that big capitals will continue to take advantage of this large rate differential
of interest
, with the incentive that, even due to the constant
appreciation of the peso, these same capitals take a significant profit
would change when selling your dollars at a certain price and buy them back more

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