Mexico's judicial reform took another step forward yesterday when the lower house of parliament approved the basic text of the legislation. Although the details of the reform will still be debated and voted on in the coming days, meaning that there could still be changes, the bulk of the reform is now likely to remain unchanged, Commerzbank’s FX strategist Michael Pfister notes.

USD/MXN is likely to test higher levels short term

“This should come as no surprise given the coalition's comfortable majority in the lower house. The vote in the Senate is likely to be more exciting, but here too, the coalition has made progress. Two opposition MPs have recently joined the alliance, leaving it just one vote short of the 2/3 majority it needs. The missing vote is likely to be found in the coming weeks.”

“While it has become clearer in recent weeks that the necessary two-thirds majority will be achieved, and the Alliance's desire to push through the changes as quickly as possible, the peso is likely to remain under pressure. On the one hand, incoming president Claudia Sheinbaum recently raised hopes by calling for more time.”

“On the other hand, there is growing opposition to the reform, which could put further pressure on the peso. For example, Supreme Court judges recently joined the judicial staff strike, while there are also claims that the reform violates the North American Free Trade Agreement. We therefore think that USD/MXN is likely to test higher levels in the coming days.”