Key points:
The Mexican peso (Symbol: USDMXN) weakened past 19.85 per USD, reaching its lowest levels since December 2022. This decline is largely due to a mix of political and economic factors that have eroded trader confidence in the near-term outlook of Mexico.
Picture: The Mexican peso losing strength against the U.S. dollar, as observed on the VT Markets app.
Consulting the charts, we see the USD/MXN pair experiencing an upward trend with a 0.40% rise during the session, closing at 19.79533, near its daily high of 19.83891. This marks a continuation of the bullish momentum seen since July 2024, with the currency pair gradually moving higher from the lows of 16.26031 earlier this year.
On the daily chart, the 24, 72-period EMAs signal a strong bullish trend as they maintain an upward slope. The price remains comfortably above both moving averages, confirming the dominance of buyers in the market. The MACD also indicates strong bullish momentum, with the histogram expanding and the MACD line rising above the signal line, suggesting that further gains could be anticipated in the near term.
Our analysts believe that key resistance lies around the 20.21656 level, a point that was tested but not breached earlier in August. If this level is broken, it could open the door for further upside potential, targeting higher resistance levels. On the downside, immediate support is likely to be found near the 19.50 level, which coincides with the 24-period EMA.
At its core, the political uncertainties surrounding the Mexican peso is the government’s proposed constitutional reforms. These reforms, led by the Morena party, aim to change the judicial appointment process from appointments to elections, which critics argue could undermine judicial independence.
People are fearful that such changes might compromise the strength of Mexican institutions, thereby affecting the country’s political stability and long-term economic outlook.
Although Morena holds a two-thirds majority in the lower house of Congress, it falls short of a majority in the Senate, casting doubt on the swift passage of these reforms. This uncertainty is reflected in the weakening of the peso, as markets view these political developments with caution.
Economic indicators have also been unfavorable, further weighing down the Mexican currency. In July, the country’s unemployment rate rose to 2.9%, its highest since January, signaling strain on the labor market. Meanwhile, the Manufacturing PMI fell to 48.5 in August, marking its sharpest contraction in two years. A reading below 50 indicates a decline in manufacturing activity, which is a key component of Mexico’s economy.
These economic headwinds have fueled expectations that the Bank of Mexico may face pressure to ease monetary policy in response to the slowdown. The central bank had previously maintained a relatively tight policy stance to combat inflation, but with weakening economic conditions, it may soon pivot toward more accommodative policies.
However, any such move could further undermine the peso as interest rate differentials narrow between Mexico and the United States.
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Political uncertainty will likely continue to be a major source of volatility in the coming weeks, particularly if there are further developments on the constitutional reforms front. Traders should keep an eye on the progress of these reforms in the Senate, as any signs of delays or opposition could lead to sharp fluctuations in the peso’s value.
On the economic side, weaker-than-expected data may prompt the Bank of Mexico to ease monetary policy, which could push the peso lower. Conversely, any signs of economic resilience, such as a rebound in manufacturing or a stabilization of the labor market, could provide some support for the currency.
Given the combination of political and economic uncertainties, traders should remain cautious and exercise risk management in short term trades.
