Mexican Peso Continues Free Fall in Wake of Trump Win
In just ten weeks, Donald Trump’s U.S. election win has already wounded Mexico’s economy and its currency, the peso.
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Trump’s campaign promises to build a wall on the Mexican border, restrict remittances and impose punitive taxes on Mexico’s manufacturing exports have created an environment of uncertainty and triggered a sharp deterioration in the peso’s value. The peso on Thursday tumbled to another all-time low against the dollar one day after the president-elect’s first press conference pushed the currency into freefall. So far, in 2017 the peso is the worst performing currency among the world’s 16 most traded currencies.
For now, Mexico’s economy is caught in a sort of purgatory
as some investors are dumping Mexican assets and others are hesitating, deciding whether to stay or join the exodus.
Until Trump clearly defines his administration’s stance when
it comes to managing the cross-border relationship,
Mexico’s economy will continue to be stuck in a sort of limbo, experts said. For now, however, most analysts remain confident that Trump will avoid taking an overtly hostile stance with Mexico and that, in the medium term, its economy will stabilize and recover.
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Ford’s recent decision to cancel a $1.6 billion investment in Mexico is another major blow. The fact that other car companies
are also re-evaluating their moves to Mexico following a pounding by Trump is another issue. And Trump’s criticism of Mexico and his proposed border have caused the country’s economy to sputter.
Cameron Brandt, the director of research at EPFR Global, a Cambridge, Massachusetts-based investment research company, told FoxBusiness.com, “there's still a lot of uncertainty. Fund managers are cutting their exposure to Mexico.”
The Road Ahead
So far, however, many analysts continue to hold a positive outlook for the recovery of the peso and Mexico’s economy.
Mark Schaltuper, the Global Head of Country Risk at BMI Research, a New York-based advisory company, told FoxBusiness.com that the peso is “extremely undervalued.”
“Negative sentiment is at extremes,” he said. “Although near-term concerns about Trump's presidency are likely to see continued volatility, we think the currency will jump back on the mildest positive news.”
Schaltuper said he is confident that unless Trump declares a full on trade war with Mexico, investment, economic activity and the peso are all going to recover.
“The currency,” he said, “will snap back.”