Mexican Peso Rebounds, AMLO Reforms Cast Shadow on Exchange Rate

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The Mexican Peso regained some ground against the US Dollar on Monday, buoyed by comments from outgoing President Andres Manuel Lopez Obrador (AMLO). However, the currency remains under pressure due to concerns over potential reforms championed by Morena party leader Mario Delgado. The USD/MXN currently hovers around 18.26, reflecting a modest 0.73% decline.

Global risk aversion, fueled by political instability in Europe, has contributed to the Peso’s recent volatility. The US Dollar remains strong against major currencies as traders await the Federal Reserve’s interest rate decision on Wednesday.

In a bid to calm markets, AMLO clarified that he would not pressure the incoming president to expedite constitutional reforms. This eased concerns triggered by earlier statements from AMLO and Morena leaders regarding judicial and electoral overhauls.

Earlier, the Peso had plunged to a 14-month low, reaching 18.65 against the dollar, before reversing course. President-elect Claudia Sheinbaum recently stated that no decisions had been made on AMLO’s proposed reforms.

Political uncertainty continues to cloud the outlook for the USD/MXN pair. In addition to political factors, traders are watching Mexico’s April industrial production figures and US inflation data, which could influence the Fed’s policy decision.

Market Movers: Political Upheaval and Peso’s Path

AMLO’s proposed reforms, including changes to the Supreme Court, electoral system, and autonomous bodies, have fueled concerns about potential economic and institutional instability. The Peso’s weakness could complicate the Bank of Mexico’s efforts to ease monetary policy, even as core inflation moderates.

Morgan Stanley warns that an unorthodox policy agenda could undermine Mexican institutions and push the Peso towards 19.20 against the dollar. Recent US data has led to a slight decrease in expectations for a Fed rate cut in September.

Technical Outlook: Peso Recovers, But Bearish Sentiment Lingers

Despite a recent pullback, the USD/MXN maintains a bullish bias. After reaching a multi-month high of 18.65, the pair has retreated to its current level. However, a key resistance level at 18.15 must be breached for a sustained reversal. Further resistance lies at 18.48, 18.65, and the psychologically significant 19.00 mark.


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