- The Mexican Peso trades slightly lower amid investor concerns the government will pass through a controversial judicial reform bill.
- Rumors an opposition senator has crossed the floor and will vote with the government are weighing.
- USD/MXN continues rising in a bullish channel.
The Mexican Peso (MXN) trades marginally lower on Tuesday, maintaining the steady bear trend established in its key pairs since April. The Peso is weakening amid investor concerns the government will successfully vote through a controversial judicial reform bill in the country’s upper house, the Senate.
MXN is also facing pressure following the release of lower inflation data for August, which increases the chances the Bank of Mexico (Banxico) will cut interest rates at its next meeting. This would be negative for the Peso as lower interest rates reduce foreign capital inflows.
On the upside, the Peso could be finding support from long-term geopolitical shifts amid deeper global trade fragmentation, after former President Donald Trump threatened to impose tariffs on countries who refuse to trade in the US Dollar (USD) if he is elected as President. Such a move, however, could place Mexico in a strong position as an intermediary.
Over recent days, Trump has recovered after lagging in opinion polls ahead of a key televised presidential debate with rival US Vice President Kamala Harris, scheduled for Tuesday.
Mexican Peso faces heat on rumors opposition senator could dissent
The Mexican Peso is under pressure as the Mexican government gets closer to voting through a bill of reforms to the judiciary that will allow judges to be elected rather than appointed. Most investors view these reforms as potentially negative for inbound investment and the economy.
The bill is now being debated in the Senate, where the government is one seat short of the majority necessary to vote it through. However, rumors that a member of the (PAN) opposition party, Miguel Angel Yunes, is considering crossing the floor to vote alongside the government suggest there is a good chance the reforms will pass, according to El Financiero. Lawmakers will vote on the bill either on Tuesday or Wednesday. The result is likely to impact the Mexican Peso.
Several big-name investors have come out against the reforms, including US investment banking giant Morgan Stanley. More recently, Julius Baer warned that rating agencies could change Mexico’s creditworthiness as soon as next year if the judicial reform is approved. Erini Tsekeridou, a fixed-income analyst, said, “although the economic impact is not yet fully clear, markets are concerned about the potential weakening of the rule of law and the concentration of judicial and executive power, which would reduce oversight and accountability,” according to Christian Borjon Valencia, Analyst at FXStreet.
“Julius Baer added their name to Morgan Stanley, Bank of America, JP Morgan, Citibanamex and Fitch ratings warnings of the economic and financial impact regarding the approval of judicial reform,” added Borjon Valencia in his report.
August Mexican inflation data shows price gains cooling more than expected
The Mexican Peso is further weighed after data out on Monday showed 12-month headline inflation in Mexico fell to 4.99% in August from 5.57% in July, according to INEGI. The result was below economists' forecasts of 5.09%.
Core Inflation, meanwhile, fell to 4.00% from 4.05% over the same period.
The data reinforces expectations that Banxico will cut interest rates by 0.25% at its next meeting, bringing the official bank rate down to 10.50%.
“The larger-than-expected fall in Mexico’s headline inflation rate, to 5.0% y/y in August, alongside the likelihood of a Fed rate cut next week, mean that Banxico is on track to lower its policy rate by another 25bp at its meeting later this month,” said Kimberley Sperrfechter, Emerging Markets Economist at Capital Economics.
At the time of writing, one US Dollar (USD) buys 19.95 Mexican Pesos, EUR/MXN trades at 22.00, and GBP/MXN at 26.09.
Technical Analysis: USD/MXN rising in a bullish channel
USD/MXN is trading within the bounds of a gently ascending mini-channel, which itself lies within a broader rising channel that began in April.
USD/MXN Daily Chart
The overall trend is bullish, and since, according to technical analysis theory, “the trend is your friend,” this favors more upside. As such, any weakness may be temporary before the pair rallies again.
A break above the top of the mini-channel and year-to-date high at 20.15 would provide added confirmation of a continuation of the bull trend, with the next target at the upper channel line in the 20.60s.
It would require a decisive breakout below the mini-channel lows to bring into doubt the short-term uptrend bias.
Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
![AUD/USD bounces back above 0.6650, as focus shifts to US CPI](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/AUDUSD/macro-of-aussie-20-note-8668638_XtraSmall.jpg)
AUD/USD bounces back above 0.6650, as focus shifts to US CPI
AUD/USD is bouncing back above 0.6650 in the Asian session on Wednesday, helped by renewed US Dollar weakness. Further upside could be capped amid RBA Hunter's comments while traders wait on the sidelines ahead of the crucial US consumer inflation data.
![USD/JPY slumps to 141.50 after BoJ Nagakawa's hawkish comments](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/USDJPY/japanese-yen-62890274_XtraSmall.jpg)
USD/JPY slumps to 141.50 after BoJ Nagakawa's hawkish comments
USD/JPY meets fresh supply and plunges to its lowest in eight months to near 141.50. The Japanese Yen receives a boost from the hawkish commentary from BoJ board member Nagakawa. Traders now look to key US CPI report for further trading impetus.
![Gold price refreshes weekly top, tests short-term trading range hurdle ahead of US CPI](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/safe-investment-gm147322399-17568598_XtraSmall.jpg)
Gold price refreshes weekly top, tests short-term trading range hurdle ahead of US CPI
Gold price attracts some buyers for the third straight day on Wednesday and touches a fresh weekly high, around the $2.520-2,521 region during the Asian session. The commodity, however, remains confined in a multi-week-old trading range as traders await the release of the latest US CPI figures due later today.
![Solana could rally as Breakpoint conference approaches](https://editorial.fxstreet.com/images/Markets/Currencies/Cryptocurrencies/Solana/Solana_Crypto_31_XtraSmall.jpg)
Solana could rally as Breakpoint conference approaches
Solana is up 0.5% on Tuesday, following significant growth in its network daily active addresses. Investors anticipate a potential rally as the Solana Breakpoint conference approaches.
![Five Fundamentals for the week: Jittery markets fear the ECB, US inflation and more](https://editorial.fxstreet.com/images/Macroeconomics/EconomicIndicator/Prices/CPI/consumer-price-index-gm500080630-80587217_XtraSmall.jpg)
Five Fundamentals for the week: Jittery markets fear the ECB, US inflation and more Premium
Is there still a chance? Investors hope for a 50-bps rate cut from the Fed but also fear a global recession is underway. The world's three largest economies, the US, China, and the eurozone, are set to rock global markets.
![Moneta Markets review 2024: All you need to know](https://editorial.fxstreet.com/images/IT/Testing/Review/FXSBadgeCertifiedBackg_XtraSmall.png)
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.