Mexico’s peso slumps to two-year low on prospect of Trump win By Reuters

LONDON (Reuters) -Mexico’s peso sank to its weakest level in over two years on Wednesday, as markets braced for a win for Donald Trump in the U.S. election, extending a streak of volatility and weakness for the emerging markets bellwether currency.

The peso dropped in early trading as low as 20.8038 per dollar for the first time since August 2022, more than 3% weaker than its previous close – the biggest such tumble since Mexico’s election in summer roiled domestic assets. It then retraced some of its losses to hover at 20.6260 to the dollar.

While emerging market currencies suffered broadly against a soaring dollar, the peso chalked up some of the biggest losses.

“The Mexican peso has been hit hard,” said Chris Turner, global head of markets at ING.

“High volatility is also undermining the carry trade and it’s hard to rule out a move to 22.00 over coming weeks.”

After Trump’s 2016 presidential victory, the peso plummeted around 8.5% on the dollar to a then-historic low.

The U.S. currency’s climb began after early indications of a Republican win in Georgia and continued to gather pace with the hitting a four-month peak.

Markets had been fretting that the United States’ southern neighbour could face trade barriers under a Trump presidency.

Turner said 2025 could be a “rough year for the peso” if presumed president Trump would question the renewal of the USMCA at its review in 2026. The United States-Mexico-Canada Agreement – a trade pact that took effect in 2020 – is up for review in 2026.

“Irrespective of a red sweep or not, tariffs would be back in play under Trump 2.0 and Mexico is set to face negative pressure amid noise on USMCA renegotiations plus additional tariffs,” Citi’s Luis Costa said in a note to clients.

The Wall Street bank also said it had put on a short position of the Mexican peso vs the South African rand, expecting the Latin American currency to weaken in that pairing.

Investors should also watch out for possible interventions by central banks in emerging markets, said Costa, flagging that Banxico said it could intervene in the case of highly dysfunctional markets.

Immigration from Mexico to the U.S. as well as remittances are expected to be other flash points under a Trump presidency.

Mexico’s currency has weakened more than 17% this year, which puts it in the top five worst performing emerging market currencies in 2024. Much of that move has happened in the wake of the country’s presidential election in which Claudia Sheinbaum winning a landslide victory.