COVID-19 Pressures Mexican Peso

The potential for a COVID-19 (coronavirus) pandemic helped send the Mexican peso down 1.09 percent (20.6 cents) to MX$19.0013 against the US dollar on Monday, after earlier dropping 2.1 percent, according to the Bank of Mexico.

With safe-haven gold and the US dollar climbing in the face of the COVID-19 outbreak, the peso is on the backfoot, having lost all its gains for 2020. On today's session, the Mexican currency was almost flat amid mixed economic data.

Other regional currencies also suffered setbacks to start the week. The Colombian and Chilean pesos declined 1.52 percent and 1.13, respectively. Brazil’s markets were closed for the Carnival holiday.

Commodities also came under pressure. In oil trade, the Mexican export mix plunged 4.25 percent, ending the session at US$46.41 per barrel, down US$2.06.

The retreat was in line with international oil prices, which plummeted nearly 4 percent as investor concerns grow that the fallout from the spreading virus will have a major impact on global fuel demand. Brent futures slid US$2.20, or 3.76 percent, closing yesterday’s session at US$56.30 per barrel, while the US reference West Texas Intermediate (WTI) fell 1.95 dollars, a 3.70 percent decline, to reach US$51.43 per barrel.

It was a bad start to the week for European stock exchanges as well. Italy’s confirmation of infections and casualties from the virus spooked the markets. The European STOXX 600 index sank 3.8 percent, recording its biggest daily plunge since the UK voted to leave the European Union on June 2016. Airlines were the day’s leading losers.

Analysts believe the European Central Bank will lower interest rates to counter slimmer growth expectations among most market sectors.

In the US, the S&P 500 and the Dow Jones suffered their biggest daily percentage declines since February 2018, with the Dow losing more than 1,000 points. The Dow Jones Industrial Average yielded 3.65 percent to end Monday’s session at 27,960. Both the S&P and Dow indexes wiped out their year-to-date gains. Hopes for a Tuesday rebound after Wall Street initially rose at the open, were thwarted. The Dow slumped 3.15 percent.

Among the S&P’s biggest sectoral losers on Monday were energy, down 4.7 percent, followed by technology with a 4.2 percent drop.

A clear sign of the market’s mood is the Chicago Board Options Exchange Market Volatility Index, known as the VIX index. The index rose 7.95 points to 25.03 points on Monday. Also known as the “fear index,” VIX reflects investor perception of the markets, mainly in the US.