• Mexican Peso dips, starting 2024’s second half on a weak note.
• Political uncertainty in Mexico and US election speculation fuel risk-aversion, overshadowing strong economic fundamentals.
• Banxico Governor Rodriguez Ceja maintains a dovish stance, noting economic resilience and openness to rate adjustments.

The Mexican Peso begins the second half of the year on the back foot against the US Dollar, tumbling more than 0.40% after posting its worst first semester since the COVID-19 pandemic. Investors' uncertainty hurts the Peso after the ruling political party, Morena, might control the Mexican Congress and push bills that threaten the status quo. The USD/MXN trades at 18.39 after hitting a daily low of 18.25.

Mexico’s currency would likely continue to be driven by domestic politics and threats that former US President Donald Trump could win November’s elections. Therefore, the Mexican Peso would be hurt by risk-aversion even though the economy remains solid. According to Goldman Sachs analyst Teresa Alves, “Mexico’s macroeconomic and FX fundamentals are in a healthier position now.”

Bank of Mexico (Banxico) Governor Victoria Rodriguez Ceja gave dovish responses to an interview by El Financiero. She emphasized, “The Mexican economy is in a solid position to face any external or internal challenges that may arise,” adding that volatility in Mexico’s financial markets had subsided, which caused a sharp depreciation of the Mexican currency in early June.

She mentioned that the Peso’s depreciation influenced the Governing Board from easing policy and said the progress in disinflation “allows us to continue discussing downward adjustments in our rate, and I consider that this is what we will be doing in our next monetary policy meetings.”