The Mexican Peso faced a significant decline against the US Dollar after comments made by Mexican President AMLO on judicial and transparency reforms, sparking concerns among investors. The USD/MXN reached a new eight-month low of 18.39, marking a drastic increase of 2.30% in a single day, with weekly gains of 8.30%. AMLO’s remarks on judicial reform and the dissolution of autonomous bodies like the INAI, Mexico’s transparency body, further intensified the uncertain outlook for the Peso.
Besides political factors, Mexico saw an increase in headline inflation for the third consecutive month, increasing pressure on the Bank of Mexico. However, core inflation, which excludes volatile items, continued to decline for the sixteenth straight month. Additionally, strong US employment data led to speculation of higher Federal Reserve rates, contributing to the overall market sentiment.
There are concerns that if Mexico’s government and Congress adopt an unconventional agenda, it could undermine Mexican institutions and negatively impact the Mexican Peso, possibly weakening it to 19.20 against the US Dollar. On the other hand, the latest US jobs report indicated a lesser expectation of a rate cut by the Fed, with only 29 basis points of easing predicted by the December 2024 CBOT fed funds future rate contract.
From a technical perspective, the USD/MXN remains bullish and may continue to rise if it surpasses key resistance levels, potentially reaching a new 18-month high. On the other hand, sellers would need to push the pair below specific support levels to maintain it within the current trading range.
The Mexican Peso’s value is influenced by various factors, including the country’s economic performance, central bank policies, foreign investment levels, remittances, geopolitical trends, nearshoring decisions, and oil prices. The Bank of Mexico’s primary goal is to maintain low and stable inflation levels through appropriate interest rate adjustments. Economic data releases play a crucial role in assessing the state of the economy and can impact the Peso’s valuation. As an emerging-market currency, the Mexican Peso tends to perform well during risk-on periods and weaken during times of market turbulence.
In conclusion, the Mexican Peso’s recent decline against the US Dollar is attributed to AMLO’s comments on judicial reforms, transparency, and political uncertainty. The rise in inflation and the impact of US economic data have also contributed to the Peso’s volatility. The future outlook for the Peso will depend on various factors, including political developments, economic data, and global market trends. Investors and traders should closely monitor these factors to make informed decisions regarding the Mexican Peso’s performance in the coming weeks.
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