Thursday, December 26, 2024

Peso still reels from Mexico’s elections, starting the week at over 18 to the US dollar

The Mexican peso depreciated to as low as 18.60 to the US dollar on Monday morning before appreciating to nearly 18.20 in the mid-afternoon, as markets continue to feel the aftershocks of Claudia Sheinbaum’s victory in the presidential election.

Bloomberg data shows that the peso fell to 18.60 shortly after 7 a.m. Mexico City time.

According to the Bank of Mexico, the peso fell even further to reach 18.65 to the greenback.

Continuing concern over Mexico’s June 2 election results and a general strengthening of the dollar caused the peso to depreciate.

However, at 3:30 p.m. Monday, the Mexican currency had recouped its earlier losses and was trading at 18.24 to the dollar, according to Bloomberg.

The peso closed at 18.31 to the dollar last Friday, having depreciated more than 8% in the space of a week after election results showed that Claudia Sheinbaum won Mexico’s presidential election in a landslide and the ruling Morena party and its allies won large majorities in both houses of Congress.

A Google Finance chart showing the strengthening of the dollar against the peso over the past month.
The US dollar has strengthened against the peso since the June 2 elections. (Google Finance)

Final results announced by the National Electoral Institute (INE) on Sunday indicated that Morena and its allies won a two-thirds majority in the Chamber of Deputies, but fell just short of a supermajority in the Senate.

That means that the Morena-led coalition will be just a few votes short of being able to approve a long list of constitutional reform proposals President Andrés Manuel López Obrador sent to Congress in February. The new Congress will commence on Sept. 1.

Gabriela Siller, director of economic analysis at the Mexican bank Banco Base, said on X on Monday that the proposed reforms “have become a synonym for uncertainty and worsening of the environment to do business in Mexico.”

She added that the proposals generating the most concern are those that would eliminate autonomous government bodies, overhaul Mexico’s judiciary and reform the INE.

President-elect Sheinbaum, who will take office Oct. 1, went to the National Palace on Monday afternoon to discuss the upcoming transition of power with López Obrador. They were expected to discuss the proposed constitutional reforms, which Sheinbaum has said she supports.

The triumphant Morena candidate and leader of the “fourth transformation” political project initiated by López Obrador was expected to hold a press conference at the conclusion of the meeting.

CI Banco said in a note that the market was awaiting news of the meeting between the current and future president. López Obrador said Monday morning that he wouldn’t pressure Sheinbaum to rush his package of proposed reforms through Congress.

Mexican pesos being printed in a mint
Another factor that could affect the value of the peso this week is the upcoming U.S. Federal Reserve interest rate announcement. (Cuartoscuro)

Another factor expected to affect the peso this week is the United States Federal Reserve’s interest rate decision on Wednesday. The Fed is widely expected to maintain its federal funds rate at 5.25%-5.5%, but the U.S. central bank will likely give some indication as to when a future cut will come.

The peso has benefited for an extended period from the large gap between the Bank of Mexico’s key interest rate — currently 11% — and that of the Fed.

In April, the currency reached an almost nine-year high of 16.30 to the dollar, more than 10% stronger than its position at 3:30 p.m. Monday.

With reports from El Financiero, Milenio, López-Doriga Digital and El Economista

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