According to analysts, the return of Republican Donald Trump to the White House would put further pressure on the Mexican currency.
From being the most appreciated emerging currency against the dollar in 2023, the peso has now depreciated by 20% so far this year. The Mexican currency ended the day of November 1 at 20.2768 units per dollar, a decline of 1.33% compared to the last day of October.
But it also had its worst level against the dollar since September 27, 2022.
In electronic transactions on Sunday at 7:10 p.m., Central Mexico time, the exchange rate was 20.10 pesos per dollar.
According to experts, the peso is the most immediate variable to face the external and internal shocks that the country faces.
Diego Albuja, a financial markets analyst at the ATFX brokerage, said that the depreciation of the peso this year reflects market uncertainty and a monetary policy in the United States that is not well defined.
An increase in interest rates in that country, he said, would make investing there more attractive and that would affect the value of the peso on the international market.
“There are also geopolitical conflicts, which create instability in the markets. This type of news negatively affects the currencies of emerging countries, generating more caution among investors,” he explained.
In addition, in Mexico, although inflation has declined, some economic risks remain present, which increases uncertainty about the exchange rate.
In the country, risk aversion increased in May, shortly before the presidential elections in Mexico and the imminent arrival of Claudia Sheinbaum.
The peso was quoted at 16.8798 units per dollar at the end of May. The local currency had been appreciating since the beginning of the year, but was already close to the 16.9665 pesos per dollar at which it closed 2023.
Gabriela Siller, Director of Analysis at Banco Base, recalled that the constitutional supremacy reform was approved, so that no amparo lawsuits can be filed against constitutional reforms.
“This weakens the separation of powers and damages Mexico’s institutional profile, raising the risk of a credit rating downgrade,” he added.
One example, he said, is the outflow of portfolio capital. The holding of government securities by foreign residents as of October 23 registered a fall of 69,174.28 million pesos or 3.75%.
“Most of this drop was concentrated between October 16 and 23, a period in which capital outflows of 58,711.72 million pesos or 3.20% were observed. At the close of Friday, the peso had accumulated a depreciation of 19.52% for the year, ranking as the third most depreciated currency in the basket of main crosses, only behind the Brazilian real (-20.97%) and the Argentine peso (-22.48%),” explained the Director of Analysis at Banco Base.
November 5th Elections
On Tuesday, the United States will elect its president for the next four years. Donald Trump is running for the Republican Party and the current Vice President Kamala Harris is running for the Democrats.
According to analysts, after the elections, the peso would show greater volatility in the event of a Trump victory.
With the arrival of Kamala Harris, they say, the peso would face less pressure on its exchange rate against the dollar.
Eduardo Caballero, an analyst at Signum Research, wrote that the least favorable scenario for Mexico would be a victory for Donald Trump, due to his trade policies and his critical stance toward the USMCA.
“Trump has threatened to impose tariffs on Mexican automotive imports and promised to renegotiate the USMCA in 2026. He is also proposing mass deportations of undocumented immigrants, raising the risk of a diplomatic crisis with Mexico,” Siller said.
He even predicted that volatility would increase and the exchange rate could move up to 20.5 pesos per dollar or more, if Donald Trump returns to the White House for another four years.
In a pessimistic scenario, the peso could depreciate against the dollar and the exchange rate could reach 22 units, explained Eduardo Caballero.
They are still in favor of the peso
Bets in favor of the peso on the Chicago Futures Exchange (CME) have recovered in the last week.
So far this year, bets in favor of the peso reached a maximum of 139,700 contracts in April. The minimum was on September 20, when 7,700 contracts in favor of the strengthening of the peso against the dollar were registered.
Last week, positions in favor of the Mexican peso reversed the prolonged decline they had experienced this year, pushing the drop back to 60% since the beginning of the year in 87,700 contracts.
In the week of November 1, net speculative positions closed at 35,000 units, which compared to the closing price of 29,200 contracts two weeks ago, represents an increase of 46.44%.
