Mexican Peso weakens after Sheinbaum confirms reform of judiciary

June 11, 2024 11:19 am

  • The Mexican Peso resumes weakening after President-elect Sheinbaum gives the green light to judicial reforms. 
  • Markets also fear President Obrador using his last month in office to push through the reforms himself. 
  • USD/MXN pushes back up against key October 2023 highs at 18.49 as it resumes the march higher.  

The Mexican Peso (MXN) trades roughly a percent lower in its key pairs on Tuesday after a press conference by President-elect Claudia Sheinbaum. In it, Sheinbaum confirmed she would be pushing ahead with reforms to the judiciary, which have raised concerns amongst investors and contributed to an over 8.0% devaluation of the Peso since the election on June 2. 

At the time of writing USD/MXN is exchanging hands at 18.44, EUR/MXN is trading at 19.82 and GBP/MXN at 23.47.

Mexican Peso weakens after Sheinbaum presses 

The Mexican Peso started depreciating again on Monday during a press conference given by Sheinbaum, at which she confirmed she would be prioritizing controversial reforms of the judiciary that investors fear could negatively impact the business climate in the country, according to Reuters. 

Up until then, Mexico’s first woman President had avoided giving a clear commitment to the reforms, which were first proposed by the present incumbent, President Andrés Manuel López Obrador (AMLO), as part of a sweeping list of changes back in February. 

In a press conference at the presidential palace on Monday, however, Sheinbaum said that after she elects her cabinet next week the “constitutional reform of the judiciary would be among the first reforms to be approved.” When asked if these would weaken the Mexican Peso, Sheinbaum said she did not believe they would impact financial markets. Other reforms that the President-elect said she would be prioritizing were those to social benefits, she added. 

The reform to the judiciary seeks to replace the current system, in which Supreme Court judges are appointed, with judges elected by popular vote. The policy also encompasses the heads of bar associations, law schools and some lower court judges. The reforms stem from criticisms of the current system which it is argued enables corruption and cronyism. 

To be pushed through, they require amendments to the constitution, for which a supermajority in both houses (over two-thirds of the seats) is necessary. Unlike AMLO, Sheinbaum’s coalition has a supermajority in the Congress and is only two seats short in the Senate.

In her press conference, Sheinbaum also said that she would be meeting a delegation sent by US President Joe Biden on Wednesday. 

Fear of AMLO

Investors are further concerned by the possibility that AMLO himself may use the supermajority to push through the reforms before he retires on October 1. 

“Congress is expected to convene on September 1, potentially giving Lopez Obrador a one-month window to push through reforms before retiring,” said a report from AFP News on Barron’s. 

Technical Analysis: USD/MXN penned in by October 2023 highs

USD/MXN – the value of one US Dollar in Mexican Pesos –  retains an upside bias as it pushes back up to resistance at 18.49 (October 2023 high). 

USD/MXN Daily Chart 


The rally in June means the pair is probably in a short and intermediate-term uptrend, and given that “the trend is your friend,” the odds favor price continuing higher. 

The Relative Strength Index (RSI) is in the overbought zone, however, suggesting traders should not add to their long positions. It also increases the possibility of a pullback developing, although the established uptrend is likely to eventually resume after that.

A break above the October high would probably confirm prices going even higher, with the next target potentially situated at 19.22 (March 2023 high).

The long-term trend is probably still bearish, however, suggesting moderate background risks continue. 

Mexican Peso FAQs

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.

The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.

Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.

As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.

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