The Mexican Peso (MXN) is resuming its downtrend after a brief pause on Tuesday following an over 4% decline in its key pairs on Monday. The Peso went into freefall after early indications showed President-elect Claudia Sheinbaum and her Morena party were heading for a landslide victory in the Mexican presidential and congressional elections held on Sunday. USD/MXN is exchanging hands at 17.87 at the time of writing, EUR/MXN is trading at 19.47 and GBP/MXN at 22.86.
The Mexican Peso plummeted on Monday after a quick count by the National Electoral Institute showed Claudia Sheinbaum leading with at least 59% of the vote in the presidential elections, and her Morena party poised to possibly clinch super majorities in both houses of the Mexican legislature. This sparked fears among investors as a left-leaning supermajority could enact proposed reforms to the Mexican constitution that critics argue could be anti-democratic and market unfriendly. According to estimates by Bloomberg Economics, Morena will probably win a super majority in Congress but fall four-seats short of one in the Senate.
The possibility of a supermajority for the Morena party has led to investor concerns about potential changes to the Mexican constitution and economic policies. However, not all of Sheinbaum’s policies may necessarily harm the Mexican Peso. Her plans to increase the minimum wage, improve welfare benefits and boost government-led investment could stimulate consumer spending and economic growth, forcing the Banco de México to maintain high interest rates.
Technical analysis of USD/MXN shows a decisive break above a long-term trendline, shifting the outlook for the pair and likely reversing the intermediate-term downtrend to an uptrend. Further upside could see USD/MXN reaching key resistance levels, with the long-term trend still bearish but showing no signs of reversal yet. The Mexican Peso’s value is influenced by various factors such as the country’s economy, central bank policies, foreign investment, and geopolitical trends, with oil prices also playing a significant role due to Mexico’s status as a key exporter of the commodity.
The main objective of Mexico’s central bank, Banxico, is to maintain low and stable inflation levels through appropriate interest rate policies. Inflationary pressures may lead to rate hikes, which are generally positive for the Mexican Peso as they attract investors seeking higher yields. Macroeconomic data releases play a crucial role in assessing the state of the economy and can impact the MXN valuation, with a strong economy and positive data supporting the currency. The Mexican Peso tends to perform well during risk-on periods when market risks are low and struggles during times of economic uncertainty or market turbulence as investors seek safer assets.
