Superweight closes its worst week in 4 years; dollar reached 18.40

The superweight lost his power this week after the results of June 2, where Claudia Sheinbaum was elected president and the process will throw Morena with the qualified majority for the next Legislature.

Such events skyrocketed the dollar, reflecting investors’ fear of the economic impact, mainly due to the reforms that are supposedly intended to be approved, which includes changes to the judiciary.

The wholesale exchange rate closed at 18.40 pesos per dollar, which meant a depreciation compared to last Friday of 8.34% or 1.42 units, its largest weekly decline since March 2020, at the beginning of the Covid-19 pandemic.

In addition, it is the largest weekly depreciation after a presidential election since at least the 1994 elections, said Gabriela Siller, director of economic analysis at Grupo Financiero Base.

During the week, the exchange rate hit a minimum of 16.92 and a maximum of 18.46 pesos per dollar, an intraday level not seen since the session of October 20, 2023.

As a result of the above, the Mexican currency ended up as the biggest loser in the week on a global scale in the exchanges of the main currencies against the dollar. It went from being among the best performers of the year to being one of the most depreciated, due to an increase in risk aversion towards Mexico.

The parity movement is influenced internally by the recent comments of the current government and the group of elected legislators of Morena about the possibility of approving constitutional reforms in September, despite the fact that the virtual president-elect, Claudia Sheinbaum, told local media on Thursday that any reform must be evaluated and explained, commented Janneth Quiroz, director of economic, exchange and stock market analysis at Monex.

Snakes and Ladders

Risk aversion had moderated after Tuesday morning, in a brief call with analysts, the Secretary of the Treasury, Rogelio Ramírez de la O, reiterated that he will continue to lead the agency for an indefinite period of time and promised to reduce the deficit to 3% of GDP, giving some confidence to the markets, Siller explained.

However, risk aversion skyrocketed again in the last two sessions of the week, after the leader of Morena in the Chamber of Deputies, Ignacio Mier, said on Thursday that they are prepared to discuss the reform initiatives of López Obrador, among which the Judiciary, the electoral and the disappearance of autonomous organizations stand out. This Friday, in the last session of the week, the exchange rate reached the maximum of 18.46 pesos per dollar after AMLO said in his press conference that the Judiciary is taken over by a minority, sending the signal that he will promote this reform before finishing his term.

Another factor that depreciated the Mexican peso was the general strengthening of the US dollar, which gained 0.88% during the week, according to the weighted index, its largest increase since the week ending April 12. The above happened before the publication of positive employment data in the United States, which suggests that the Federal Reserve (Fed) will keep its interest rate high, Quiroz and Siller agreed.

The retail dollar ended the week at 18.60 pesos for sale in banks, 6.6% or 1.15 units above the previous Friday’s close, according to Banorte.

Stock market stumble

Along with the rise in the exchange rate, falls were observed in the capital market in Mexico, so that the BMV Price and Quotations Index closed the week with a loss of 3.99%.

In Monday’s session, the main market indicator fell 6.1% after the news of the election results. The rest of the week the CPI tried to recover lost ground, but yesterday it fell 2.8% again.

Of the 35 stations that make up the Price and Quote Index, 26 fell in the week, highlighting Banorte, with a decline of -13.7%; Gentera, -10.3%; Industrias Peñoles, -10.0%; Banco del Bajío, -9.6%; Mexico Group, -9.3%; Megacable, -9.0%; Qualitas, -8.8%, and Banregio, -8.3%.

Financial markets are in a process of adaptation to the new reality, as it reflects the important concern and sensitivity about the transition period; particularly, what the closure of the current administration and the beginning of the new six-year term will be like, warned Quiroz.

Although there are various counterweights that have helped provide some respite, the high uncertainty about what will happen in the coming months remains in the vision of investors, he added.