The Mexican peso depreciated to over 20 to the US dollar on Thursday morning, weighed down by the controversial judicial reform proposal that was approved by the lower house of Congress on Wednesday.
Compared to its closing position on Wednesday, the peso fell more than 1% to reach 20.15 to the greenback early Thursday.
It subsequently recouped some of its losses and was trading at 19.99 to the dollar at 10 a.m. Mexico City time.
It was the first time since October 2022 that the peso broke the 20-to-the-dollar barrier.
Since reaching a near nine-year high of 16.30 to the greenback in April, the peso has depreciated more than 18%.
Much of the decline has occurred after Claudia Sheinbaum and the ruling Morena party won comprehensive victories in the June 2 presidential and congressional elections, putting Morena lawmakers in a strong position to approve a raft of constitutional reform proposals that President Andrés Manuel López Obrador sent to Congress in February.
Investors have been especially spooked by the plan to allow Mexican citizens to directly elect Supreme Court justices and other judges. That proposal is now one step closer to reality after lawmakers in the Chamber of Deputies approved it on Wednesday morning.
The Senate — in which Morena and its allies are just one vote short of a supermajority — is set to consider the bill next week.
López Obrador and President-elect Sheinbaum have defended the reform as the peso lost ground over the past two months, asserting that investors have nothing to worry about and that the reform will strengthen — not weaken — Mexico’s justice system and democracy.
Many critics of the bill — including United States Ambassador to Mexico Ken Salazar — have other ideas.
Foreign exchange news website FX Street reported Thursday that “the peso is being sold because investors are fretting about the Mexican parliament passing a controversial bill of reforms that critics say will compromise the independence of the judiciary, undermine democracy and damage international trade and foreign investment.”
“… From a financial perspective, the reforms run the risk of leading to a decline in foreign investment. This, in turn, would reduce demand for the peso, leading to a further depreciation of the currency,” FX Street said.
Financial news website Market Watch reported Thursday that investors have “dumped carry trades” involving the peso “amid concerns about political upheaval” in Mexico, and after an interest rate cut in Mexico last month.
The peso “has been buffeted by the prospect of passage of Mexico’s judicial reform…which has overtaken monetary policies and U.S. politics as a source of consternation in recent weeks,” said Thierry Wizman, a foreign exchange strategist at the investment bank Macquarie.
“It is likely to remain a source of worry throughout September,” he added.
Gabriela Siller, director of economic analysis at Banco Base, said on X that it is possible that the peso will trade at 20.50 to the dollar in September due to “greater risk aversion about Mexico and lower attractiveness for carry trades.”
She also posted a graph to X that showed that the peso has depreciated more against the US dollar this year than any other major currency.
The peso had been one of the world’s best performing currencies, supported by the significant difference between the Bank of Mexico’s official interest rate and that of the United States Federal Reserve.
Mexico’s central bank cut its benchmark rate to 10.75% last month, the second reduction this year after one in March. The Fed has maintained its federal funds rate at 5.25%-5.5% since July 2023.
Beyond the judicial reform, other factors that could affect the peso in the coming months are monetary policy in Mexico and the United States, the U.S. presidential election, economic growth rates and global geopolitical events.
With reports from El Financiero, El Universal, FX Street and Market Watch
Peso has always devalued against the dollar over time. I first went to Mexico in the early 90’s and the exchange rate was 3,000 to 1. Mexico cut off the zeroes to make it 3 to 1. Over time, 3 to 1 became 5, 10, 15, 20, 25. I have no doubt the trend will continue. In 20 years it will probably be 50 to 1.
Dont you mean to say the peso rises above 20 to the USD not dips below c,mon gets things right if your
goanna report important financial facts:
The peso devalued, or depreciated to more than 20 pesos to the USD not the reverse as you say
Brian Howarth Ph.D
Thank you. While I understood what the author intended to say, the headline was confusing.
The headline is wrong…..please edit.
Well this constitutional reform that AMLO and his party are about to pass is going to cause great concern by foreign investors in Mexico and will have ramifications felt across Mexico’s economic well being from my point of view. This country has corruption at every level and the idea that the entire population will now vote for Supreme Court Justices will show people how easily an election can be bought. Hang on to your hats folks this should get real interesting.
The initial headline was just fine for a financial/economic publication, but certainly confusing for the general audience of your newspaper. (Tough crowd, as well!).
Mark, I concur with your comment. Tough crowd and all. Lol
Don’t use “slips below the dollar”, The government economist always want to “confuse” the public because they assume you are “stupid” and don’t know anything. They use a bunch of “fancy “words” so the government and the economy of Mexico, doesn’t sound or look so “BAD”. Blame the President Sheinbaum and the Economic Secretary for a “lousy” economy growth.
What you have to remember is that in reality, the value of the “peso” is going down. Just tell all the people that it will takes more “pesos” to buy American “goods”. So when you come to America for vacation or to buy anything, get a “big suitcase” to carry lots of “pesos”.
Economic Secretary, and President Sheinbaum, “quit” lying to the people about a “strong economy in Mexico.
“.
MND – Since there is nothing magic about 20 pesos per USD (just psychological because we, humans, are fascinated by round numbers), maybe change the headline to ‘Peso value falls as prospects of Reforms rise’
you cant carry lots of pesos to the USA, its agaimst the US regulations, Maximum is $ 10,000 USD in any form
of financial instrumentation, checks, bankers draft or whatever
Brian Howarth
You can physically carry as much money into the US as you want, but $10k and above must be reported to customs.
Has anyone heard about a new law where land cannot be owned by foreigners? Not just on the coast but, in Mexico City?
Not True
Legal reforms are an overreaction but there is also a massive yen/peso carry trade that is at risk of being unwound as Japan raises interest rates and Mexico lowers them.