Traders Ditch Mexican Peso as Attack Lifts Trump’s Election Bid

The Mexican peso is bearing the brunt of the selloff in foreign-exchange markets as money managers ramp up bets Donald Trump will secure a second term in the White House after the assassination attempt this weekend. 

The currency slipped as much as 1.3% Monday, before paring the decline to trade at 17.8 per dollar. Measures of expected volatility in the peso jumped as the currency faces a double threat: Trump’s election rhetoric and a slew of policy changes in Mexico after the left-leaning ruling party scored a super majority in congress last month. 

“We are bearish on the peso’s prospects if Trump is reelected,” said Aroop Chatterjee, a macro strategist at Wells Fargo in New York. While the GOP candidate’s sweeping tariff proposal and calls for immigration curbs often drive currency market swoons, “we remain more concerned on the domestic backdrop in Mexico post its own elections in June, which have opened the door for radical institutional changes.” 

Buying dollars is part of the so-called “Trump trade,” a strategy that wagers a second term for the former president will lead to trade protectionism, high deficits and inflationary pressures sinking longer-dated bonds and steepening the US Treasury yield curve. That’s hurt the peso. 

In Mexico, though, traders are focused on September, when President Andres Manuel Lopez Obrador will overlap with the new congress before his successor takes office. He’s proposed changes to the judicial, pension and electoral systems. 

“People aren’t looking at the bigger picture here,” said Thierry Wizman, director of global currencies and an interest-rate strategist at Macquarie Futures. “If the story is still one of deglobalization, and Mexico doesn’t adopt any radical policies to deter investment, that should continue to support the peso.” 

Moreover, during Trump’s first term in office the peso jumped more than 10% against the dollar, outperforming many of its major currency peers. The advance, analysts said, was more akin to a relief rally that picked up as it became clear that Trump’s version of a North American trade agreement would include Mexico. 

“Trump’s trade policies could end up being more nuanced in practice,” said Kathleen Brooks, research director at XTB, adding his tariff proposals “could have more bark than bite.” 

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