Trump effect starts to weaken the ‘Super Peso’ but will it fall further?

By Shayre Angulo

Bets have increased on Donald Trump being the standard bearer of the Republican Party in the United States presidential elections on November 5, and the Mexican peso has begun to suffer losses, raising caution in the markets.

However, analysts agree that the tycoon This is no longer as strong a risk for Mexico as it was in the 2016 election year. He also does not expect the “super peso” – due to appreciate in 2023 – to reach historic highs in the 2020 US presidential race, when Trump lost his re-election to Democrat Joe Biden and the per capita average Was 21.48 pesos. Dollar.

Following former President Trump’s landslide victory in the Iowa caucuses on January 15, which solidified his control of the 2024 Republican presidential nomination, the Mexican peso declined by 1.02%, trading around 17.05 pesos per dollar, the exchange rate maximum. Reached. Of 17.08 pesos per dollar.

The Iowa caucuses serve as an early indication of which presidential candidate is likely to win their political party’s nomination at the national convention.

In his celebration speech, Trump said that his government would seal the border with Mexico to prevent “invasion” in reference to the immigration crisis, to which President Andrés Manuel López Obrador even responded that “This is part of the campaign in the United States.” In an effort to rebuff Republican threats, the States “united” to try to win the vote.

“The borders between Mexico and the United States cannot be closed,” the president said at his daily news conference.

“It is likely that the rhetoric against Mexico will continue in the coming months, as in addition to the immigration crisis, Trump may mention the fentanyl crisis and offer incentives to companies to relocate their activities to the United States, That could affect adjacent regions. Opportunities for Mexico,” Gabriela Siller, director of financial analysis at Grupo Financiero Base, said in her account on “X” after learning of the Iowa results.

Continue reading story

However, the economist pointed out that, despite the risks, Trump is a known factor, which is why he predicted the exchange rate would react. According to his statements, it reached a level between 18 and 18.50 pesos per dollar “in a limited way” this year.

Following the Republican primary in New Hampshire on January 23, the exchange rate rose again to 17.36 pesos per dollar when the results were announced, which ultimately confirmed Trump’s victory.

Siller attributed the increase to Trump and expectations that the interest rate differential between Mexico and the United States would narrow given a more cautious FED, while the Mexican central bank (Banxico) started with rate cuts in the first quarter. Could. “In a pessimistic scenario (the exchange rate) could reach 20 pesos (per dollar),” the Grupo Financiero Base analyst said in his previous forecast.

Yes, the market knows it but “anything can happen with Trump”

“So far, Trump’s impact on the Mexican peso has been limited, I think the way the mini primaries or the Iowa caucuses got stirred up created a little bit of a buzz and it was totally surprising. Now, they took the New Hampshire result more calmly and its impact on the exchange rate was very limited,” he said. yahoo finance James Salazar, Deputy Director of Economic Analysis at CI Banco in Mexico.

“What may happen in the future? “This issue is definitely going to be strong,” Salazar said.

The CI Banco analyst predicts that after the July convention, once the Republican candidate is elected, the concrete proposals and threats he makes against Mexico will certainly be seen.

“The impact on the exchange market will definitely be negative, it will cause some volatility, but not as much as in 2016… The market already knows it,” Salazar said, noting that CI Banco’s forecast for the exchange rate at year-end is closer to 18.50 pesos per dollar.

“2016 was unusual because the main problem there was that the polls did not show Trump as the favorite. Hillary Clinton was the favorite. So when Trump won it was a surprise and that’s what the markets didn’t like. That’s why there was such a strong reaction that as soon as he came to the presidency in January 2017 (…) the situation started to calm down,” he explained.

Siller, for his part, acknowledged that Republicans are no longer “as strong a risk” to Mexico as they were in 2016, because Republicans chose Mexico as a trade partner in the T-MEC, while they started a trade war with China. Was. , And the market already knows his rhetoric and his aggressive way of speaking. “Of course the market will react, but not as strongly as in 2016.”he said on his “X” account in mid-January.

After learning the results of the New Hampshire mini primaries, the Grupo Financiero Base analyst highlighted that “the exchange rate already reached in January the level it would have reached by May, according to the levels seen in previous elections. “. Will Siller’s pessimistic scenario of 20 pesos per dollar be reduced by the end of 2024? We will have to wait.

Salazar pointed out that in the basic scenario, risks cannot be ruled out, “because anything can happen with Trump,” even if he threatens to leave the T-MEC from July 2020. And this is one of the main factors that is driving the relocation of companies to Mexico or adjacent regions as well as FDI.

You may also be interested. on video

BBVA: Uncertainty over elections in 2024 could hinder growth in Mexico