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Mexican Peso Nears Post-Election Lows Amid Reform Fears

The Mexican Peso (MXN) has weakened, approaching its post-election lows against major currencies, as investor concerns grow over potential radical constitutional reforms proposed by the newly re-elected left-wing government. The USD/MXN pair has climbed above 18.10, reaching 18.12 at the time of writing. EUR/MXN and GBP/MXN also experienced declines, trading at 19.62 and 23.11, respectively.

Market Drivers: Political Uncertainty and Strong US Jobs Data

The renewed weakness in the peso stems from comments by Ignacio Mier, the head of the ruling Morena party in Congress, who announced plans to submit controversial constitutional reforms for discussion and a vote. These reforms, proposed by outgoing President Andres Manuel Lopez Obrador (AMLO), have raised concerns among investors due to their perceived anti-democratic and market-unfriendly nature.

The recent landslide victory of President-elect Claudia Sheinbaum and her Morena party, potentially securing a supermajority in Congress, has fueled these concerns. The peso initially lost 5% on Monday and Tuesday due to early election results, but briefly recovered mid-week after reassurances from the Finance Minister. However, Mier’s comments reignited investor worries about the proposed reforms.

The strengthening US Dollar (USD) further contributed to the peso’s weakness. The latest US Nonfarm Payrolls data exceeded expectations, with 246K new jobs added in May, higher than the forecast of 185K. Average Hourly Earnings also surpassed estimates, reducing expectations of a Federal Reserve (Fed) rate cut and boosting the USD’s appeal.

Economic Data: Mexican Inflation Rises

Mexican inflation data for May showed a slight increase to 4.69%, while core inflation rose by 0.17%. This data, along with the political uncertainty, has added to the downward pressure on the peso.

Technical Analysis: USD/MXN Resumes Uptrend

The USD/MXN pair is rallying again, indicating a continued bullish trend in the short and intermediate term. The break above key levels at 17.54 and 17.72 suggests a reduced likelihood of bearish pressure. The pair is now approaching resistance at 18.20, and a break above this level could confirm a continuation of the uptrend, targeting the October 2023 high of 18.49.

While the long-term trend remains bearish, the current momentum favors the USD, with moderate background risks persisting.