The Mexican peso experienced pressure with USD/MXN approaching the recent peak of 18.60 in Asia's overnight trading. The move comes after Mexico's President-elect, Claudia Sheinbaum, announced that judiciary reform would be an early topic for the new congress in September.
The peso has already weakened by 8% due to concerns that the Morena party, having performed strongly in recent elections, might implement constitutional reforms that could negatively impact the market. This potential agenda is expected to be viewed unfavorably by North American investors, possibly leading to a further decline in the peso's value as markets there open today.
Analysts at ING have been bullish on the peso for a long time, but said they would remain cautious now.
The analysts also said the very popular long MXN/JPY carry trade may face further challenges this Friday when the Bank of Japan meets to set policy. No rate change is expected, but officials could give some clues on the timing of the start of tightening, where BoJ monthly purchases of JGBs could be cut from JPY6trn to JPY5.5trn or even JPY5.0trn. This could help the yen.
