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Currency Risks and High Rates are the Main Focus of Hedging Contracts


Feb 12, 2024

In 2024, financial coverage to reduce the risk of investors of retail or institutional, 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).

The director of the derivatives exchange in Mexico assured that in this election year and interest rate movements, investors, to cover their risks of shocks in the exchange rate, to pay for inputs, a loan or to protect an investment, They will use exchange rate and interest rate futures or options.

And the volatility that will be generated by the elections in Mexico and the United States, as well as the start of the first decreases in the central banks’ reference rates will begin to generate volatility in investors’ portfolios. This will be a year of extreme volatility in the financial market, which raises the possibility of high fluctuations in the assets of retirement workers and retail investors, mainly due to the fact that there will be presidential elections in Mexico and the United States.

Meanwhile, amid greater liquidity and broader client participation, Mexican peso futures contracts on the Chicago Mercantile Exchange (CME) Group, the world’s leading derivatives market, reached a record average daily volume in 2023.

The continued growth of the Mexican economy, combined with the current interest rate environment, is leading more clients to trade currency futures at CME Group, explained Paul Houston, global head of foreign exchange products. He added that as client participation continues to increase, they are focused on creating and maintaining continued liquidity that will support the long-term development of electronic foreign exchange markets in Latin America. The Mexican peso ended 2023 as the best year in its history, with a gain of 13 percent against the 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 that they can take advantage of the liquidity of both market makers global as well as local. He gave the example of currency futures operations in Latin America in 2023: Mexican peso contracts reached a record $1.8 billion in average daily volume (ADV) of the equivalent reference value. Brazilian real futures also reached an all-time high of $300 million in the equivalent benchmark ADV.

By Editor

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