Judicial reforms are making their mark – ING

The peso ended yesterday at its lowest levels of the year against the dollar as investors continue to take a dim view of the ruling Morena party’s constitutional reforms, notes Chris Turner, FX strategist at ING.

Judicial reforms are currently in the spotlight

“Currently, there is a lot of attention on judicial reforms centered on the election of judges – including Supreme Court judges – by popular vote. Incumbent AMLO says his reforms aim to reduce corruption in the judiciary. Many others say the reforms represent an alarming concentration of power.”

“Worrying for investors is that these judicial reforms passed the committee stage without any dilution. And we should expect more peso volatility in the coming weeks as the reforms are debated in Congress as the government tries to secure a two-thirds majority in both the lower house and the Senate.

“And unlike Brazil, where the central bank could raise rates on September 18, the Peso looks unlikely to receive support from the central bank. Here Banxico is trying to steer a clear course towards lower rates. Let’s see if Banxico’s inflation report out today adds weight to Banxico’s optimism on the path to lower core inflation – probably a negative peso if it does.”