- The Mexican Peso resumes its weakening after President-elect Claudia Sheinbaum gives the green light to judicial reforms.
- Markets also fear that President Andrés López Obrador will use his final month in office to push through reforms himself.
- USD/MXN climbs back to key October 2023 highs at 18.49 as it resumes the upward march.
The Mexican Peso (MXN) is trading about 1% lower across its key pairs on Tuesday following a press conference by President-elect Claudia Sheinbaum. In it, Sheinbaum confirmed that she would move forward with reforms to the judiciary, which has raised concerns among investors and contributed to a more than 8.0% devaluation of the Peso since the June 2 elections.
At the time of writing, USD/MXN is trading at 18.44, EUR/MXN is trading at 19.82 and GBP/MXN at 23.47.
The Mexican peso weakens after pressure from Sheinbaum
The Mexican peso began to depreciate again on Monday during a press conference given by Sheinbaum, in which he confirmed that he would prioritize controversial judicial reforms that investors fear could negatively affect the business climate in the country, according to Reuters.
Until then, Mexico’s first female president had avoided giving a clear commitment to the reforms, which were first proposed by the current president, Andrés Manuel López Obrador (AMLO), as part of a list of changes in February.
At a news conference at the presidential palace on Monday, however, Sheinbaum said that after electing his cabinet next week, the “constitutional reform of the judiciary would be one of the first reforms to be approved.” When asked if these would weaken the Mexican peso, Sheinbaum said he did not believe they would impact financial markets. Other reforms that the president-elect said she would prioritize would be social benefits, she added.
The reform of the judiciary seeks to replace the current system, in which Supreme Court judges are appointed, with judges elected by popular vote. The policy also covers the heads of bar associations, law schools and some lower court judges. The reforms arise from criticism of the current system, which it is argued allows corruption and cronyism.
To be approved, they require amendments to the constitution, for which a supermajority in both chambers (more than two-thirds of the seats) is necessary. Unlike AMLO, Sheinbaum’s coalition has a supermajority in Congress and is only missing two seats in the Senate.
In his press conference, Sheinbaum also said he would meet with a delegation sent by US President Joe Biden on Wednesday.
Fear of AMLO
Investors are even more concerned about the possibility that AMLO himself could use the supermajority to push through reforms before stepping down on October 1.
“Congress is expected to convene on September 1, potentially giving López Obrador a month-long window to push through reforms before stepping down,” said an AFP News report in Barron’s.
Technical Analysis: USD/MXN capped by October 2023 highs
USD/MXN – the value of one US Dollar in Mexican Pesos – maintains a bullish bias as it climbs back to resistance at 18.49 (October 2023 high).
USD/MXN Daily Chart
The rally in June means that the pair is probably in an uptrend in the short to medium term, and since “the trend is your friend,” the odds favor the price to continue rising.
The Relative Strength Index (RSI) is in the overbought zone, however, suggesting that traders should not add to their long positions. It also increases the chance of a pullback developing, although the established uptrend is likely to eventually resume after that.
A break above the October high would likely confirm that prices will rise further, with the next target potentially sitting at 19.22 (March 2023 high).
The long-term trend likely remains bearish, however, suggesting that moderate underlying risks remain.
The Mexican Peso FAQs
The Mexican Peso is the legal tender of Mexico. The MXN is the most traded currency in Latin America and the third most traded on the American continent. The Mexican Peso is the first currency in the world to use the $ sign, prior to the later use of the Dollar. The Mexican Peso or MXN is divided into 100 cents.
Banxico is the Bank of Mexico, the country’s central bank. Created in 1925, it provides the national currency, the MXN, and its priority objective is to preserve its value over time. In addition, the Bank of Mexico manages the country’s international reserves, acts as a lender of last resort to the banks and advises the government economically and financially. Banxico uses the tools and techniques of monetary policy to meet its objective.
When inflation is high, the value of the Mexican Peso (MXN) tends to decrease. This implies an increase in the cost of living for Mexicans that affects their ability to invest and save. At a general level, inflation affects the Mexican economy because Mexico imports a significant amount of final consumption products, such as gas, fuel, food, clothing, etc., and a large amount of production inputs. On the other hand, the higher the inflation and debt, the less attractive the country is for investors.
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, and may affect demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, and may affect demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
