07:09 AM EDT, 08/28/2024 (MT Newswires) -- The peso (MNX) weakened sharply on Tuesday as the domestic political factors in Mexico undermined MXN's performance, said MUFG.

Tuesday, a key congressional committee cleared President Andres Manuel Lopez Obrador's (AMLO') legislative plan to overhaul the judiciary in Mexico and bring in a popular vote system for electing judges. Many fear this will in fact lead to increased corruption and undermine the independence of the judiciary, wrote the bank in a note to clients.

Given that AMLO's Morena Party won a super-majority in the June elections, getting this passed in Congress by the required two-thirds majority is "very feasible" although the majority in the upper house is two seats short of the two-thirds supermajority.

Still, this MXN underperformance could certainly extend further, stated MUFG. USD/MXN broke to a new high on Tuesday, to a level not seen since December 2022.

Mexico's central bank (Banxico) hasn't helped the situation with a 25bps rate cut that divided the policy committee, pointed out MUFG. The deputy governor has expressed his opposition to the easing given the danger to inflation expectations due to the depreciation of MXN.