Mexico Peso Trims Gain as Opposition Senators Join Government
(Bloomberg) -- The Mexican peso trimmed a rally from earlier in the day after President-elect Claudia Sheinbaum said two opposition senators had joined the ruling coalition, moving her government closer to the supermajority needed in both chambers to change the constitution.
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The peso gained 0.5% to trade at 19.64 per dollar, after earlier rallying as much as 1.7%. The nation’s dollar bonds lagged emerging-market notes, slipping across the curve.
Volatility in the currency has soared in the past few months after an unexpected congressional landslide by Morena, the ruling party, in June’s election. Wednesday’s moves leave the party just short of the two-third majority needed for constitutional change in the senate.
“We have to understand there’s a lot of uncertainty with everything related to Mexico,” said Juan Perez, a trader at Monex in Washington. “First of all it’s obvious that with the new administration there’s a stronger and reform-hungry version of Morena.”
The currency has sank almost 14% since the vote, the worst performance among major peers in that period, underscoring trader’s fears over Mexico’s political developments. Traders worry President Andres Manuel Lopez Obrador’s plan to overhaul the judicial system, for example, may curtail the independence of judges and remove checks to the ruling party’s power.
Fluctuations in Mexico’s exchange rate are only in small part related to the judicial reform, Sheinbaum said Wednesday, adding there’s other international factors weighing down currencies around the world.
In recent weeks, the peso has also been beaten down by a global unwinding of carry trades and uncertainty over an upcoming presidential election and the economy in the US.
Brief Respite
The peso rallied earlier after the incoming leader of the ruling party in the lower house, Ricardo Monreal, said lawmakers won’t rush a controversial proposal to overhaul the country’s judiciary. Monreal later said he’s expecting the reform to be approved in his chamber by Sept. 5, days after the new congress is inaugurated Sept. 1.
His earlier remarks were enough to momentarily cheer up investors who on Tuesday drove the peso to the weakest level in almost two years after a key committee swiftly approved the proposal in the lower house.
The proposal includes replacing all Supreme Court justices with new ones voted into office just as the ruling party enjoys strong popular support.
(Recast with latest developments and market moves throughout)
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