Argentina's government has announced a direct intervention in the foreign exchange market to address mounting currency pressures, as corruption allegations and political uncertainty weigh on investor confidence ahead of crucial regional elections.

On September 2, Finance Secretary Pablo Quirno stated on X that the Treasury would participate in the FX market to contribute to its "liquidity and normal functioning." The peso had declined 1.6% by the same day, recovering from earlier losses of up to 2.8% as trading resumed following the US holiday, data compiled by Bloomberg showed. Sovereign debt also came under pressure, with 2035 bonds falling 1.6 cents on the dollar to their lowest levels since April.

The market volatility coincides with intensifying corruption allegations against President Javier Milei's sister and close advisor Karina, prompting police raids on the National Disability Agency and pharmaceutical company Suizo Argentina.

The libertarian leader has defended his sister against the accusations, slamming them as politically motivated attacks targeting his administration.

Last week, Milei was forced to abandon a campaign rally near Buenos Aires after a violent mob pelted his motorcade with rocks, eggs and branches, in yet another sign of the growing backlash against his radical economic reforms.

The currency intervention comes at a critical juncture, with Buenos Aires Province elections scheduled for September 7. The province, representing nearly 40% of Argentina's population and a traditional Peronist stronghold, is viewed as a key indicator ahead of October's congressional midterm elections.

This direct market intervention reveals growing concern within the Milei administration about financial stability ahead of crucial electoral tests. While recent polling suggests that Milei’s La Libertad Avanza remains competitive for the October midterms, the government's ability to manage currency volatility and navigate the corruption scandal could significantly impact its electoral prospects, cost-cutting efforts and broader economic reform agenda.