Traders sell Mexican peso as attack boosts Trump’s election chances

The Mexican peso is bearing the brunt of a wave of selling in foreign exchange markets as asset managers increase their bets that Donald Trump will secure a second term in the White House following this weekend’s assassination attempt.

On Monday, the currency lost as much as 1.3 percent before reversing its decline to trade at 17.8 to the dollar. Expected peso volatility increased as the currency faces a double threat: Trump’s campaign rhetoric and a series of political changes in Mexico after the left-leaning ruling party won a supermajority in Congress last month.

“We are pessimistic about the peso’s prospects if Trump is re-elected,” said Aroop Chatterjee, macro strategist at Wells Fargo in New York. While the Republican candidate’s sweeping tariff proposals and calls for immigration restrictions often lead to losses in foreign exchange markets, “we remain more concerned about the domestic political situation in Mexico after the June elections, which opened the door for radical institutional change.”

The dollar purchase is part of the so-called “Trump trade,” a strategy that bets that a second term for the former president will lead to trade protectionism, large deficits and inflationary pressures that will drive down longer-term bonds and steepen the U.S. Treasury yield curve, hurting the peso.

In Mexico, however, traders are focused on September, when President Andres Manuel Lopez Obrador will meet with the new Congress before his successor takes office. He has proposed changes to the judicial, pension and electoral systems.

“People are not seeing the bigger picture here,” says Thierry Wizman, director of global currencies and interest rate strategist at Macquarie Futures. “If deglobalization continues and Mexico does not take radical measures to discourage investment, that should continue to support the peso.”

In addition, the peso rose more than 10 percent against the dollar during Trump’s first term, outperforming many of its major currencies. The rise, analysts said, was more akin to a relief rally that gained momentum when it became clear that Trump’s version of a North American trade deal would include Mexico.

“Trump’s trade policy could be more nuanced in practice,” said Kathleen Brooks, head of research at XTB, adding that his tariff proposals “could be more show than substance.”

This article was generated from an automated news agency feed without any modifications.