Claudia Sheinbaum’s presidency represents a pivotal moment in Mexico’s political evolution, blending the legacy of her predecessor, Andrés Manuel López Obrador (AMLO), with her own technocratic expertise. As Mexico’s first female president, Sheinbaum is expected to maintain some of AMLO’s populist policies, particularly in social welfare and national sovereignty. However, her scientific background suggests shifts in key areas like energy and security.
AMLO’s presidency was characterized by ambitious social programs, anti-corruption efforts, and a nationalistic agenda aimed at reclaiming control over key industries, particularly energy. His “Fourth Transformation” movement sought to reshape Mexico’s political and economic landscape, prioritizing the poor and addressing inequality. Major infrastructure projects, including the Maya Train and a new oil refinery, were central to his administration, though they also faced opposition from environmentalists and indigenous groups.
Sheinbaum now inherits a complex set of challenges, including cartel violence, economic inequality, and strained institutional stability. On the international front, her presidency is likely to focus on maintaining cooperation with the U.S. on migration, while shifting Mexico’s energy policy towards renewable sources. This could foster closer ties with the Biden administration on climate initiatives, marking a departure from AMLO’s heavy emphasis on fossil fuels. As Sheinbaum navigates these issues, her ability to balance continuity with her own technocratic approach will shape Mexico’s future trajectory. The success of her presidency will depend on how she addresses these domestic and international challenges while carving out her own political identity.
Claudia Sheinbaum and USD/MXN:
The latest months of presidency of AMLO have seen a weak Peso, considering also recent rate cuts of the Banxico.
The USD/MXN weekly chart displays an interesting technical setup:
- The 200-week moving average (red) sits below the current price level bit is quite flat without slope and recently was tested as a valid support.
- The 55-week moving average (yellow) is below the 200-week MA but curving upward, indicating a medium-term upward momentum.
- The 21-week moving average (azure) is also climbing, showing stronger short-term bullishness.
The stochastic oscillator is hovering around 64, signaling the possibility of continued upside but not yet overbought. Price recently broke the 200-week MA but is now retracing, suggesting a test of support around 19.50-19.70 levels. If this zone holds, further upside is possible. A failure could see USD/MXN revisiting the 18.90-19.00 range.
The spike on USD/MXN in 2020 was the risk aversion triggered by Covid 19 virus, and then followed years of successful carry trade which lasted even during the initial tightening phase of the Federal Reserve.
Banco de México (Banxico) and Carry Trade
In September 2024, Banco de México announced a reduction in its overnight interbank interest rate by 25 basis points to 10.50%, marking the first rate cut in the current cycle. This decision reflects a response to easing inflationary pressures, with headline inflation decreasing from 5.57% in July to 4.66% in mid-September, and core inflation down to 3.95%. The central bank noted improved inflation outlooks, with projections suggesting that headline inflation will converge to the 3% target by Q4 2025.
However, the Bank remains cautious, highlighting several risks that could challenge this outlook, including persistent core inflation, potential exchange rate depreciation, and external geopolitical factors. Despite these risks, the Mexican economy is experiencing a phase of weakness, with slow employment growth and a volatile peso. The board acknowledged that the balance of risks for inflation remains tilted to the upside but has improved compared to the shocks from the COVID-19 pandemic and the war in Ukraine.
The decision was supported by four of the five board members, with one member advocating for keeping the rate unchanged at 10.75%. Going forward, the Board will monitor inflation and economic conditions closely, remaining open to further adjustments in the reference rate depending on global and domestic developments. Banco de México reaffirmed its commitment to ensuring price stability while aiming for an orderly convergence of inflation to its medium-term target of 3%.
This move signals a potential shift in monetary policy, with the central bank adopting a more accommodative stance while maintaining vigilance against possible inflationary spikes or economic instability. The focus remains on supporting a gradual economic recovery while keeping inflation under control.
Photo from Secretaría de Cultura Ciudad de México
