Mexico: Peso suffers strong volatility ahead of U.S. presidential election
October 7, 2016
The Mexican peso started November losing 1.5% of its value against the U.S. dollar in a day, reflecting market anxiety with just a week to go before the U.S. presidential election. On 1 November, the peso settled at 19.19 MXN per USD, losing part of the ground gained in the two previous weeks.
The peso has swung back and forth between record lows against the U.S. dollar and intermittent rebounds as Donald Trump has risen and fallen in the opinion polls. The Mexican currency has become the proxy for U.S. presidential election sentiment this year and the MXN has weakened again at the outset of November as Hillary Clinton’s lead over Trump in national opinion polls has narrowed dramatically amid revelations that the Federal Bureau of Investigation (FBI) has opened a new query into the former Secretary of State’s use of private email server for official issues. In addition, the weakness of the Mexican currency comes amid an increasingly uncertain backdrop in global financial markets and rising odds that the U.S. Federal Reserve will raise interest rates in December.
A victory of Hillary Clinton is the baseline scenario for the majority of analysts we survey, although the presidential race has remained relatively tight and subject to surprising turns of events. The majority of analysts see that a Clinton victory will prompt the peso to rebound strongly from the current low levels, given Mexico’s tight monetary policy, the government’s progress with austerity measures, recovering oil prices and a gradual improvement in the external accounts.
Author: Ricardo Aceves, Senior Economist