Mexican Peso Lags as EM Markets ‘Finally’ Wake Up to Trump Risks

The Mexican peso led emerging-market currencies lower on Wednesday as traders recalibrate portfolios ahead of the US election next month. 

The prospect of Donald Trump’s return to the White House is causing investor jitters after he defended his proposals to impose tariffs on goods manufactured abroad to protect US jobs during an interview with Bloomberg News. 

The Mexican peso slipped to the lowest level versus the dollar in a month as Trump said automakers building plants in Mexico are a “serious threat” to the US. The Brazilian real also underperformed, as traders looked past government pledges to contain spending, while Colombia’s peso and Peru’s sol lagged peers. 

“The risk of a Trump presidency and tariffs has been severely underpriced,” said Jayati Bharadwaj, a strategist at TD Securities. “Markets seem to be waking up to that risk finally.” 

Hedge Fund FX Option Bets Are Soaring on Trump Tariff Risk 

A gauge of expected price volatility in emerging-market currencies over the next month is hovering near the highest in a year and a half. Trump’s return to the White House would pose a serious risk for developing-world currencies across the board as traders flock to buy dollars, but hinder the Mexican peso and Chinese yuan harder on the back of tariff threats, Bharadwaj. 

“Markets are now in a mini regime of heightened volatility ahead of US elections,” Citigroup strategists wrote in a note Wednesday. “Rates will continue to trade in a range, and broad dollar on a marginally stronger footing.” 

Meantime, money managers are paying attention to Federal Reserve officials, who will decide on the next rate move just two days after the Nov. 5 vote. Atlanta Fed President Raphael Bostic said late Tuesday that the US economy will slow down but remain robust, adding that the downward path for inflation could see some bumps. 

Stocks 

Emerging-market stocks also extended declines, as they got hit by the double-whammy of US election jitters and the grim outlook for the Chinese economy. 

Shares of Taiwan Semiconductor and Samsung Electronics were the biggest losers in the benchmark MSCI index for developing-world shares as Dutch chipmaker ASML’s chief executive said he expects a slow chip market recovery to extend “well into 2025.” 

In China, stocks on the CSI 300 continued to drift lower, edging closer to a technical correction as traders concluded economic stimuli announced over the weekend wouldn’t be enough to spur consumption. Meantime, an index of Latin American equities slipped for a second day.

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