USDMXN Analysis – 9-September-2024

In the first days of September, the Mexican peso plummeted, approaching $20 (USD/MXN), marking its weakest performance since October of the previous year. This drop coincided with Mexico’s lower house passing contentious judicial reforms on September 4.

Controversial Reforms Stir Economic Uncertainty

The proposed reforms, which suggest electing judges by popular vote instead of traditional appointments, have sparked widespread concern. Observers fear these changes could undermine the judiciary’s independence and deter foreign investors.

Critics of the reforms believe they are insufficient in addressing corruption and may adversely affect international trade relationships. As a result, there is growing anxiety about potential declines in foreign investment, which could further weaken the peso.

Economic Indicators Signal Challenges

Adding to the economic turmoil, Mexico’s unemployment rate climbed to 2.9% in July, reaching a peak not seen since the start of the year.

Furthermore, the manufacturing Purchasing Managers’ Index (PMI) dropped to 48.5 in August, indicating the most severe industry contraction in the last two years.

These troubling economic indicators have compelled the Bank of Mexico to consider reducing borrowing costs to alleviate financial pressure.

• Also read: USD/CNH Analysis – 9-September-2024

Conclusion: Navigating Economic Strains

The convergence of judicial reforms, worsening economic indicators, and the subsequent fall of the peso highlight significant challenges for Mexico’s economy.

The country faces the dual task of restoring confidence in its judicial system while stabilizing economic conditions to prevent further depreciation of its currency and protect foreign investment interests.

Moving forward, the effectiveness of the government’s response to these issues will be crucial in determining Mexico’s economic trajectory.

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