The Mexican Peso (MXN) experienced a brief recovery on Thursday after the President of the Banxico, Victoria Rodriguez Ceja, warned that the central bank would intervene to prop up the Peso if volatility persisted. However, the Peso faltered on Friday as traders continued to push it lower following the outcome of the June elections. The USD/MXN pair appears to have completed its correction and is now resuming its bullish trend.
The Mexican Peso is trading between half a percent and over one percent lower in its most traded pairs on Friday as markets are concerned about the proposed policies of Mexico’s newly elected left-wing government. The Peso is also under pressure from a squeeze on overweight long positions that have built up after a period of appreciation for the currency. At the time of writing, one US Dollar purchases 18.62 Mexican Pesos, EUR/MXN is at 19.92, and GBP/MXN is at 23.67.
Following verbal intervention by the President of the Banxico, the Mexican Peso saw a temporary recovery. However, traders continued to pressure the currency downward after the results of the Mexican elections on June 2. President-elect Claudia Sheinbaum and her left-wing coalition Sigamos Haciendo Historia (SHH) won a supermajority in the Mexican house of deputies, making it easier for President Andres Manuel Lopez Obrador to pass radical amendments that have caused concern in the markets.
The proposed amendments and reforms in Mexico include changes to minimum wages, state-sector pensions, abolishing independent regulators, and reforms to the judiciary. Critics are worried about the erosion of checks and balances and the potential impact on inflation control by Banxico. President AMLO defended the reforms, stating that they aim to improve democracy and the rule of law. The depreciation of the Peso following the elections has raised concerns and may signal an overdue correction after a period of overvaluation.
The technical analysis for USD/MXN indicates a resumption of the short-term uptrend, with the next target potentially at 19.22. The relative strength index (RSI) suggests a correction may continue before the uptrend resumes. The Bank of Mexico, or Banxico, plays a crucial role in guiding monetary policy through interest rate decisions. The central bank aims to maintain low and stable inflation within target levels and reacts to the decisions of the US Federal Reserve.
In conclusion, the Mexican Peso’s recent fluctuations are driven by a combination of political factors, market sentiment, and central bank policies. The proposed reforms in Mexico have raised concerns about the Peso’s future trajectory, with investors closely monitoring the situation. Banxico’s interventions and interest rate decisions will play a key role in determining the Peso’s value in the coming months.
