The Mexican peso collapses after the approval of AMLO's judicial reform.

The Mexican peso faced a harsh blow on Tuesday, leading the losses among its major peers following the approval of a comprehensive judicial reform plan proposed by President Andrés Manuel López Obrador (AMLO). This development has raised concerns among investors, who perceive the reform as a threat to the rule of law in Mexico, a country already grappling with deep issues of corruption and organized crime. The reform, which proposes that all federal judges be elected by popular vote instead of being appointed, was approved by a key congressional committee. This swift advancement surprised many analysts, who expected a more protracted negotiation that could dilute some of the more controversial proposals. Marco Oviedo, a strategist at XP Investimentos, expressed disbelief over the lack of modifications to the original proposal, which has led to increased economic uncertainty. Supporters of the reform argue that it aims to eradicate corruption in the judicial system. However, the criticisms have been strong. Opponents warn that this change could undermine judicial independence and, in turn, erode the checks on the power of the ruling party, Morena. The situation has created a climate of tension in the country, where workers within the judicial system have launched national strikes in opposition to the reform. Concerns have intensified further with the warning from U.S. Ambassador Ken Salazar, who stated that the reforms would represent a "significant risk" to democracy in Mexico. These concerns are not unfounded, as there are fears that changes in the judicial system could facilitate the infiltration of drug cartels into the country's institutions, a problem that has been endemic in Mexico for years. With the new Congress taking office next week, the debate over the reform will intensify and will require a two-thirds approval in both chambers. This presents a new set of challenges for AMLO's government, which is facing a transitional period as it prepares to hand over power to his successor, Claudia Sheinbaum, in October. As these events unfold, the markets have reacted negatively. The Mexican peso plummeted by 1.4%, reaching a level of 19.67 per dollar, making it the worst-performing currency globally. Since the legislative election last June, the peso has lost more than 13% of its value against the dollar, a dramatic shift compared to its strength in previous years. Analysts have begun advising investors to reconsider their positions in Mexican assets. Morgan Stanley, for example, has downgraded its rating for stocks in Mexico to "underweight," citing the recent reforms as a risk-increasing factor. Uncertainty about the U.S. economy has also added pressure on the peso, which has seen massive selling in carry trade operations. The current situation of the peso reflects a radical shift in investors' expectations. Previously, the currency enjoyed unprecedented strength, supported by record interest rates, fiscal prudence, and relative political stability. However, the recent series of political decisions has left many questioning the future stability of these conditions. In this context, the financial community is on high alert. Strategists from Citigroup and Goldman Sachs have closed bullish positions on the peso, indicating that there are no short-term catalysts suggesting a recovery. In the coming weeks, noise surrounding the judicial reform is expected to continue, which could influence investment decisions and overall confidence in the Mexican economy. The uncertainty surrounding the judicial reforms not only affects the peso and the markets but also has broader implications for Mexico's political and economic future. At a time when the country is at a crossroads, the direction these reforms take could define the path toward the consolidation or weakening of democratic institutions in the country.