The Mexican peso is bearing the brunt of selling pressure in foreign exchange markets as money managers become increasingly confident that President Donald Trump will secure a second term in the White House following this weekend’s assassination attempt.
The peso fell 1.3% on Monday before paring losses to trade at 17.8 to the dollar. Implied volatility for the currency has spiked as it faces the dual threat of President Trump’s election speech and a series of policy changes in Mexico following the left-wing ruling party’s victory in the Mexican Congress last month.
“The outlook for the peso is bearish if Trump is re-elected,” said Aroop Chatterjee, a macro strategist at Wells Fargo & Co. in New York. While the Republican candidate’s sweeping tariff proposals and calls to restrict immigration often spark sharp sell-offs in currency markets, “we are more concerned about the situation inside Mexico after the June elections, which have opened the door to fundamental reform of the system.”
The dollar buying is part of the so-called “Trump trade,” a strategy betting that a second term for former President Donald Trump would lead to trade protectionism, big budget deficits and inflationary pressures that would drive down the value of long-term government bonds and steepen the Treasury yield curve, putting pressure on the peso.
But in Mexico, traders are focused on September, when President Andres Manuel Lopez Obrador’s term will overlap with a new Congress before his successor is sworn in. The president has proposed reforms to the judicial, pension and electoral systems.
“People aren’t looking at the big picture here,” said Thierry Wisman, director of international currencies and interest rate strategist at Macquarie Futures. “As long as the situation remains deglobalized and Mexico doesn’t adopt radical policies that discourage investment, the peso should remain supported.”
Moreover, the peso surged more than 10% against the dollar during Trump’s first term, outperforming many other major currencies, a rally that analysts say was mostly due to relief after it became clear that Mexico would be included in Trump’s North American trade deal.
“Trump’s trade policy may actually be more nuanced,” said Kathleen Brooks, research director at XTB, adding that his tariff proposals “may be all bark and no action.”
This article has been generated from an automated news agency feed without any modifications to the text.
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