• Mexican Senate passes controversial judicial reform, but Peso recovers as investors focus on potential Fed easing cycle.
• USD/MXN drops 1.63% with investors pricing in an 85% chance of a 25 bps rate cut at the Fed's September meeting.
• US inflation data raises doubts over a 50 bps rate cut, while the US economic docket featuring PPI and consumer sentiment may influence USD/MXN.

The Mexican Peso staged a recovery against the US Dollar on Wednesday as investors shrugged off Mexico’s Senate passing of a controversial reform that threatens the state of law. Expectations that the Federal Reserve (Fed) will begin its easing cycle next week keep the Peso on the front foot. The USD/MXN trades at 19.75, down by 1.63%.

Mexico’s economic docket revealed that Industrial Production in July was lower than expected based on monthly figures, while it expanded on an annual basis. Political tensions heightened after the Mexican Senate voted to approve the judiciary reform with 86 votes in favor and 41 against.

Now that the bill has been approved, it will be sent to 32 state congresses. For the reform to become law in the Mexican Constitution, it would need the approval of 17 congresses.

Across the border, data from the US Bureau of Labor Statistics dampened traders' hopes for the Fed's 50-basis-point (bps) rate cut. Inflation in the US remains within reach of the US central bank target, yet core figures on MoM figures rose.

This bolstered the Greenback, though the uptick was short-lived. The US Dollar Index (DXY), which tracks the performance of the buck’s value against a basket of peers, is virtually unchanged at 101.70, up 0.05% following the CPI release.