By Karin Strohecker and Noe Torres
LONDON/MEXICO CITY (Reuters) -The Mexican peso hit its weakest level in more than two years on Wednesday as Donald Trump emerged victorious in the U.S. presidential election, continuing a streak of volatility and weakness for the emerging currency.
The peso fell in early trading for the first time since August 2022 to a low of 20.8100 per dollar, more than 3% below its previous close and the biggest drop since Mexico’s summer elections roiled domestic assets come.
It then recovered some of its losses and was trading at 20.6170 against the dollar by 0928 ET, down 2.59%.
While emerging market currencies suffered heavily from the surging dollar, the peso posted some of the biggest losses.
“The Mexican peso has been hit hard,” said Chris Turner, Global Head of Markets at ING, adding that he would not rule out a move towards $22.00 in the coming weeks.
But Rodolfo Ramos, head of Mexico research at Brazilian bank Bradesco, said he was no stranger to a Trump administration and this was now “an attractive entry point” for investors.
“Mexico has already worked successfully with him,” he said in a letter to his clients. “We see uncertainty about rates in the short term, but we remain positive about nearshoring in the medium and long term.”
After Trump’s presidential victory in 2016, the peso plummeted by about 8.5% against the dollar, reaching an all-time low at the time.
Markets are concerned that the United States’ southern neighbor could face trade barriers under the Trump presidency.
However, Mexican President Claudia Sheinbaum spoke about the strong relationship. “There will be a good relationship with the US, I am convinced,” she said at a regular news briefing. “There’s no reason to worry.”
TRADE PACT
Turner said 2025 could be a “tough year for the peso” if Trump questions the extension of the USMCA at the 2026 review. The United States-Mexico-Canada Agreement – a trade pact that came into effect in 2020 – is scheduled to be revised in 2026.
“…Tariffs would come into play again under Trump 2.0 and Mexico will face negative pressure amid the furor over the USMCA renegotiation plus additional tariffs,” Citi’s Luis Costa said in a letter to clients.
The Wall Street bank said it had taken a short position in the Mexican peso against the South African rand, expecting the Latin American currency to weaken in that combination.
Immigration from Mexico to the US and remittances are expected to be other flashpoints under Trump’s presidency.
Investors should also beware of possible interventions by central banks in emerging markets, Costa said. Banxico said it could intervene in the case of highly dysfunctional markets.
The Mexican currency has weakened more than 17% this year, becoming one of the five worst-performing emerging market currencies in 2024. Much of that movement has occurred since Sheinbaum’s landslide victory in June.
Sheinbaum will present her first budget on November 15. Citi economists expect a 5% deficit by 2025.
