The Mexican Peso faced a significant depreciation against the American Dollar due to Senate discussions surrounding the approval of judicial reform. The USD/MXN pair currently trades at 20.07, up from a low of 19.86. The volatility of the Mexican currency is expected to persist throughout the week as the Senate engages in discussions regarding the reform bill.
Foreign institutions and rating agencies have expressed concerns over potential economic risks and a possible downgrade if the judicial reform is approved. Institutions like Julius Baer, Morgan Stanley, and Citibanamex have all warned of the negative impact on Mexico’s creditworthiness. The approval of the reform could also affect the country’s economic and financial stability.
Recent data regarding the Consumer Price Index (CPI) in Mexico showed softer-than-expected inflation, increasing the likelihood of a rate cut by the Bank of Mexico (Banxico) on September 26. Analysts anticipate a 25 bps rate cut at the upcoming Banxico meeting due to the latest inflation report and the expected rate cut by the US Federal Reserve.
A Reuters poll revealed that a majority of economists expect the Federal Reserve to lower interest rates by 25 bps at the September 17-18 meeting. The focus is now on the release of the latest inflation report in the US, which is expected to support the case for a rate cut by the Fed. The decision by the Fed is likely to have an impact on the Mexican Peso as well.
The technical outlook for the USD/MXN pair indicates a rise above the 20.00 level, with momentum suggesting further gains. If the pair continues to hold above 20.00, it could target higher levels such as the YTD high at 20.22 and beyond. On the other hand, a weakening of the pair could find support at 19.50 before potentially testing lower levels.
Banxico, Mexico’s central bank, plays a crucial role in guiding the country’s monetary policy and preserving the value of the Mexican Peso. The bank uses interest rate adjustments to control inflation levels, with higher rates being positive for the Peso and lower rates potentially weakening it. Banxico’s decision-making is closely tied to the US Federal Reserve, with the central bank often reacting to or anticipating Fed policy changes.
In conclusion, the Mexican Peso’s performance is heavily influenced by Senate discussions on judicial reform, upcoming rate decisions by Banxico and the Federal Reserve, as well as economic data releases. Investors and traders will closely monitor these developments to gauge the impact on the USD/MXN pair and the overall economic outlook for Mexico.
