1. “Navigating Exchange Rate and Interest Rate Risks in the Mexican Financial Market Ahead of 2024”

Currency risk and high rates are the main focus of hedging contracts

As we approach 2024, financial coverage for retail and institutional investors, such as Afores or investment funds, will focus on the exchange rate (peso-dollar) and interest rates, predicts José Miguel de Dios, general director of the Mexican Derivatives Market (MexDer). In this election year and with interest rate movements, investors will use exchange rate and interest rate futures or options to cover their risks of shocks in the exchange rate.

The volatility generated by the elections in Mexico and the United States, as well as the start of the first decreases in central banks’ reference rates, will create volatility in investors’ portfolios. This is expected to be a year of extreme volatility in the financial market. The possibility of high fluctuations in assets of retirement workers and retail investors is raised mainly due to presidential elections in Mexico and the United States.

Mexican peso futures contracts on the Chicago Mercantile Exchange (CME) Group reached a record average daily volume in 2023. The continued growth of the Mexican economy combined with current interest rate environment led more clients to trade currency futures at CME Group. As client participation continues to increase, they are focused on creating and maintaining continued liquidity that will support long-term development of electronic foreign exchange markets in Latin America. The Mexican peso ended 2023 as its best year ever with a gain of 13 percent against US currency to close at 16.96 units per dollar spot.

Bernardo Gattass, head of volatility trading at Itaú explained that many large global institutional investors would do well to add CME Group to their lists of price providers for Latin American currencies so they can take advantage of liquidity from both market makers global as well as local. He gave an example of currency futures operations in Latin America in 2023: Mexican peso contracts reached a record $1.8 billion in average daily volume (ADV) equivalent reference value while Brazilian real futures also reached an all-time high of $300 million ADV equivalent benchmark.[

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