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by USD/MXN—In June, the Mexican Peso depreciated beyond 18.65 per USD, marking its lowest since October. This significant drop followed the most challenging week for the peso in nearly four years. The primary driver behind this depreciation was the unexpected outcome of recent elections.
USDMXN Analysis – 11-June-2024
Traders Brace for Claudia Sheinbaum’s Policies
Traders quickly adjusted their positions due to fears about potential reforms from the ruling Morena party, led by President-elect Claudia Sheinbaum. These reforms could weaken checks on government power and increase government interference in the economy, creating uncertainty and volatility in the market.
Supreme Court Reforms Spark Concerns
One primary concern is the possible impact on the Supreme Court and independent regulators, which are crucial for maintaining checks and balances within the government. Market participants worry that reforms could undermine these institutions, increasing risk and instability.
Additionally, the peso faced further pressure from a strong rebound in the US dollar. Positive US payroll data strengthened the dollar, making it more attractive to investors than the peso.
Mexico Inflation Hits Four-Month Peak
Mexico’s domestic inflation surged to a four-month high of 4.69% in May. This rising inflation pressures Banxico, Mexico’s central bank, to keep interest rates high. While this strategy helps curb inflation, it also limits the peso’s sharp decline by making it more expensive to borrow money.
Understanding these factors is essential for making informed financial decisions in this volatile economic environment.
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