Authors: Karin Strohecker, Noe Torres and Rodrigo Campos
LONDON/MEXICO/NEW YORK (Reuters) – The Mexican peso weakened slightly on Wednesday after recovering significantly from falling earlier in the day to its lowest level in more than two years, as analysts said the decline in response to Donald Trump’s U.S. election victory was exaggerated.
While the U.S. election extended a streak of volatility and weakness in emerging markets, Mexico was seen as particularly vulnerable given its exposure to the U.S. economy, its largest export market.
The peso weakened 0.4% at 2:36 p.m. ET to trade at 20.2048 per dollar, after initially falling to 20.8100 per dollar for the first time since August 2022, which some analysts say may be overkill.
“I think some of it has already been priced in currency, although there are also big domestic factors weighing on the peso,” said Shamaila Khan, head of fixed income for emerging markets and Asia-Pacific at UBS Asset Management.
“Volatility can work both ways because when you have a super majority, the government can also do a lot of good things,” Khan added, referring to the political strength of the Morena coalition ruling the country.
Emerging market currencies showed mixed performance against the soaring dollar, with the Brazilian real gaining more than 1% and the Chilean peso posting the biggest losses in Latin America.
The Mexican peso has lost more than 18% of its value against the U.S. dollar this year, suffering a pointed decline after Mexico’s summer elections rocked domestic assets.
Rodolfo Ramos, head of Mexico research at Brazilian bank Bradesco, said the Trump administration is not unknown and is now an “attractive entry point” for investors.
“Mexico has already engaged with him successfully,” he said in a note to clients. “We see uncertainty around tariffs in the short term, but remain positive on nearshoring in the medium to long term.”
After Trump’s presidential victory in 2016, the peso fell about 8.5% against the dollar, reaching a historic low at the time.
As markets assess the impact of trade barriers Trump has threatened, Mexican President Claudia Sheinbaum has tried to downplay concerns about a drastic break.
FUTURE WORRIES
Still, Chris Turner, global head of markets at ING, said he would not rule out a move to 22.00 pesos per dollar in the coming weeks.
He added that 2025 could be a “tough year for the peso” ahead of the 2026 review of the USMCA trade pact.
Citi’s Luis Costa said in a note to clients that the Wall Street bank placed a miniature position on the Mexican peso against the South African rand, expecting the Latin American currency to weaken in the pair.
Immigration from Mexico to the U.S., as well as remittances, are expected to be further flashpoints during Trump’s presidency.
Investors should also pay attention to possible central bank interventions in emerging markets, Costa said. Banxico said it could intervene in highly dysfunctional markets.
Mexico’s currency is one of the five worst-performing emerging market currencies in 2024, with much of that weakness coming since Sheinbaum’s landslide victory in June.
Sheinbaum is scheduled to present his first budget on November 15. Citi economists expect a 5% deficit in 2025.
