The Mexican Peso is showing mixed performance after experiencing a four-day rally against the US dollar, EURO , and British pound. The currency’s recent strength is attributed to comments from a senior Bank of Mexico official advocating for the continuation of elevated interest rates and a Supreme Court decision to reassess controversial judicial reforms. The USD/MXN exchange rate is approaching a crucial support level defined by a rising channel and the 50-day Simple Moving Average (SMA).
In the past week, Deputy Governor of the Bank of Mexico, Jonathan Heath, indicated that interest rates would likely remain high for an extended period. High interest rates tend to attract foreign capital inflows, contributing to the Mexican Peso’s appreciation. Additionally, the Supreme Court’s ruling to review the judiciary reforms—initially passed by the government in September—provided further momentum for the Peso rally. This review could potentially halt reforms aimed at altering the appointment system for judges.
Currently, the Mexican Peso is aligned with the 50-day SMA across its main trading pairs, a significant technical indicator for institutional investors. The recent ruling by the Supreme Court—where eight out of eleven judges voted to re-evaluate the proposed reforms—reflects concerns about the impact these changes may have on the judicial independence, along with investor sentiment that had deteriorated since the government’s election in June.
Despite the Peso’s gains, analysts warn that the judicial reforms pose ongoing risks to the currency’s stability and broader financial markets in Mexico. Historically, these reforms have raised alarms about threats to democracy and foreign investment, leading to a previous depreciation of 10%. Observers point out that while Mexico holds an investment-grade rating from major agencies, the situation could change if institutional quality declines further.
From a technical perspective, the USD/MXN has reached a pivotal point at the 50-day SMA, where traders will watch for signs of support that might signal a rebound. However, the short-term outlook appears bearish, particularly with the GBP/MXN trading below its rising channel, suggesting potential vulnerabilities for other Peso pairs. A significant drop beneath these critical levels could lead to further losses for the Dollar-Peso exchange rate, with potential declines toward established psychological levels.
