LONDON/MEXICO CITY (Reuters) -Mexico's peso touched its weakest level in over two years on Wednesday as Donald Trump emerged victorious in the U.S. presidential election, extending a streak of volatility and weakness for the emerging markets bellwether currency.
The peso dropped in early trading as low as 20.8100 per dollar for the first time since August 2022, more than 3% below its previous close and the biggest such tumble since Mexico's election in the summer roiled domestic assets.
It then retraced some of its losses to hover at 20.6170 to the dollar by 0928 ET, down 2.59%.
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, adding he would not rule out a move to 22.00 to the dollar over coming weeks.
But Rodolfo Ramos, head of Mexico research at Brazilian bank Bradesco, said a Trump administration was not an unknown and this was now "an attractive entry point" for investors.
"Mexico has already worked with him successfully," he said in a note to clients. "We see uncertainty on tariffs in the short term, but we remain positive on nearshoring over the medium and long run."
After Trump's 2016 presidential victory, the peso plummeted around 8.5% on the dollar to a then-historic low.
Markets are fretting that the United States' southern neighbour could face trade barriers under a Trump presidency.
Mexican President Claudia Sheinbaum talked up the strong relationship, however. "There'll be a good relationship with the U.S., I'm convinced of this," she said at a regular news briefing. "There's no reason to worry."
TRADE PACT
Turner said 2025 could be a "rough year for the peso" if Trump were to 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.
"...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 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.
Immigration from Mexico to the U.S. as well as remittances are expected to be other flash points under a Trump presidency.
Investors should also watch out for possible central bank interventions in emerging markets, said Costa. Banxico said it could intervene in the case of highly dysfunctional markets.
Mexico's currency has weakened more than 17% this year, one of top five worst performing emerging market currencies in 2024. Much of that move has happened since Sheinbaum's landslide victory in June.
Sheinbaum is set to present her first budget on Nov. 15. Citi economists expect a 5% deficit for 2025.
