The Mexican peso falls to its lowest level in eight months after comments from López Obrador and US data.

• The Mexican Peso collapsed to 18.40 against the USD following Mexican President López Obrador’s comments on judicial and transparency reforms.
• AMLO’s comments on judicial reform and the dissolution of autonomous organizations raise concern among investors.
• Mexico’s headline inflation rises for the third month, while core inflation declines for the 16th consecutive month.
• Strong US jobs data increases speculation about higher Fed rates for an extended period.

The Mexican Peso fell to a new eight-month low against the Dollar on Friday after comments from Mexican President Andrés Manuel López Obrador (AMLO) unsettled investors, who continued to sell Pesos amid an uncertain outlook. USD/MXN is trading at 18.35, gaining around 2.0% after hitting a multi-month high of 18.39.

In his usual morning press conference, Mexican President AMLO insisted on presenting a judicial reform and another that involves the dissolution of autonomous organizations, such as INAI, the government’s transparency body.

López Obrador emphasized his radical rhetoric and declared, “The judiciary is hijacked, the service is taken over by a minority of those at the top. I have already said it here, and they know it very well. It is even shameful, but there are ministers who are as employees of large corporations,” according to El Financiero.

Consequently, USD/MXN jumped from around 17.95 towards a multi-month high of 18.39 following AMLO’s comments. Traders should be aware that the Mexican Peso will be extremely sensitive and volatile amid political uncertainty.

Political commentary aside, Mexico’s headline inflation rose for the third consecutive month, putting pressure on the Bank of Mexico (Banxico). However, core inflation, which excludes volatile elements and provides a clear view of prices, fell for the 16th consecutive month.

Across the border, the latest US jobs report fueled speculation that the Federal Reserve (Fed) would keep rates “higher for longer,” with numbers that topped estimates.

Following the data, US Treasury yields jumped more than ten basis points (bps), with the 10-year Treasury yield rising to 4.414%, up 12.5 bps, and supporting to the Dollar. The US Dollar Index (DXY), which tracks the performance of the US currency against six others, rose 0.74% to 104.86.

Looking at the data, Mexico’s auto exports increased in May, but less than in April, indicating that the economy is feeling the impact of higher borrowing costs set by Banxico.

Daily summary of market drivers: The fall of the Mexican Peso continues due to investor fears

• On Thursday, Morena’s leader in Congress, Ignacio Mier, commented that they will present the proposals to the newly established Congress in September.
• Some of the most important proposals include a reform of the Supreme Court, which proposes that Supreme Court justices be elected by popular vote; an electoral reform, which seeks to ensure that INE councilors are elected by popular vote and reduce multi-membership; and a reform of autonomous bodies, which implies the dissolution of INAI, the transparency body.
• Mexico’s Consumer Price Index (CPI) in May was 4.69% year-on-year, compared to 4.65% in April, while the underlying CPI fell from 4.37% to 4.21%.
• Although this fuels speculation of another rate cut by Banxico in June, further depreciation of the Mexican peso could prevent the Central Bank of Mexico from relaxing policy.
• Morgan Stanley noted that if Mexico’s next government and Congress adopt an unorthodox agenda, it would undermine Mexican institutions and be bearish for the Mexican Peso, which could weaken to 19.20.
• The US Bureau of Labor Statistics (BLS) revealed that Nonfarm Payrolls for May increased by 272,000, exceeding forecasts of 185,000 and 165,000 in April.
• The US unemployment rate jumped from 3.9% to 4%, while average hourly earnings (AHE) rose 4.1% year-over-year, up from 4%.
• Contrary to Thursday’s expectations that the Fed could cut rates by 39 bps by the end of the year. However, the latest US jobs report saw a drop to just 29 bps of easing, according to the CBOT December 2024 federal funds rate futures contract.

Technical Analysis: Mexican Peso Depreciates Sharply as USD/MXN Rises Above 18.20

From a technical standpoint, USD/MXN remains bullish and could extend its gains if the pair manages a fifth daily close above a four-year descending resistance trend line drawn from all-time highs (ATH) around at $25.77, which was broken on Monday. That could be the final nail in the coffin for the strength of the Mexican Peso.

The next resistance for USD/MXN would be the October 6 high of 18.48, which could open the door to challenge the psychological figure of 19.00. Once that level is broken, on March 20, 2023, a high of 19.23 would follow. If all of those levels are broken, the exotic pair could reach 20.00 and hit a new 18-month high.

On the other hand, sellers need to push USD/MXN below the April 19 high of 18.15 if they wish to keep the pair within the 18.00-18.15 trading range.