Peso plunges due to imminent Judicial Branch reform

The Mexican peso depreciated sharply on Wednesday, falling for the third day in a row. The local currency lost ground amid concerns over a questionable proposal by Morena and the federal government to reform the Judiciary.

The impact of the depreciation of the Mexican peso in light of the impending reform of the Judicial Branch reflects a complex web of factors affecting both the political and economic stability of the country.

The exchange rate closed the day at the level of 19.3433 units per dollar, which compared to a record of 18.9959 units on Tuesday, according to official data from the Bank of Mexico (Banxico), meant a depreciation of 34.74 cents, or 1.82 percent. The price of the dollar moved in an open range, with a high of 19.4074 pesos and a low of 18.9301.

The Mexican peso has historically shown remarkable resilience, a strength that stands out especially in times of global or regional crises. This resilience is the product of a diversified economy and a generally prudent monetary policy managed by Banco de México.

The peso has lost for three consecutive days and, since closing at 18.6294 units per dollar on Friday, it has accumulated a drop of 71.39 cents or 3.83 percent. This past Wednesday, the peso reached its highest level in two weeks: 19.4074 units per dollar.

However, the currency's recent depreciation highlights some structural weaknesses, such as the peso's vulnerability to political volatility and the perception of risk in international markets.

The proposed reform of the Judicial Branch and the possibility that it will be approved by a Congress dominated by the ruling party generates an atmosphere of uncertainty.

This uncertainty represents a significant weakness, as it affects investor confidence and could have negative repercussions on institutional stability, a key pillar for sustained economic growth.

The perception that the rules of the game could change abruptly may lead to capital flight and a reduction in foreign direct investment, thus limiting the potential for economic development.

Despite this outlook, the Mexican market also faces important opportunities. The depreciation of the peso may, in the short term, make Mexican exports more competitive, favoring key sectors such as manufacturing, automotive and agribusiness. In addition, the current situation could open a window of opportunity for domestic companies seeking to expand into international markets, taking advantage of a favorable exchange rate to boost their foreign sales.

However, these opportunities are accompanied by significant threats. The increasing volatility of the peso not only affects companies with dollar exposure, but can also increase import costs, putting pressure on domestic inflation and affecting consumer purchasing power.

The possibility of a judicial reform that profoundly alters the balance of powers in the country could trigger a crisis of confidence, both internally and externally, eroding the perception of Mexico as a safe and stable destination for investment.

The international environment also plays a crucial role in this analysis. The U.S. Federal Reserve's monetary policy, which points to a possible interest rate cut, could alleviate some of the pressure on the peso. However, the interconnectedness of global markets means that any erratic movements in larger economies, such as the U.S., could have immediate repercussions for the Mexican economy. This, combined with the prospect of judicial reform in Mexico, adds an additional layer of complexity and risk.

In summary, the Mexican market is at a critical point where its strengths and opportunities must be carefully managed to mitigate the weaknesses and threats that emerge in this context. The resilience of the peso and Mexico's export capacity are valuable assets, but political uncertainty and international tensions present challenges that require a strategic and coordinated response.

The future of the Mexican market will depend to a large extent on how these factors are handled in the coming months, and on the ability of economic and political actors to navigate in an environment full of challenges and possibilities.

Collaboration: Editorial Auge.