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Currency Traders Brace for Mexico Peso Drama After US Election - BLOOMBERG
(Bloomberg) -- Mexico traders are bracing for violent swings in the peso after the US election in less than two weeks, with the winner a coin toss between Kamala Harris and Donald Trump.
The Mexican peso’s one-month implied volatility briefly surged above 22.43%, hitting the highest level since April of 2020 on Wednesday, data compiled by Bloomberg show. The peso, which has slumped 15% this year, is seen as one of the most vulnerable emerging-market currencies should Trump impose stiff tariffs.
“We have a very cautious view,” said Francisco Campos, chief Latin America economist at Deutsche Bank. “If Kamala wins, I’d expect a relief rally that would take the peso below 19-per-dollar. If Trump wins with a red sweep, the peso would go to 20.5.”
The currency was little changed at 19.95 per US dollar as of 10:45 a.m. New York Wednesday.
Trump has vowed to slap US firms moving production to Mexico with tariffs — a focal point in the Republican’s economic-policy agenda.
“There’s a lot of uncertainty about a possible implementation of tariffs for auto exports,” said Erick Martinez Magana, a strategist at Barclays Plc, adding he wouldn’t be surprised if the one-month implied volatility surged near 30%.
Still, some including JPMorgan Chase & Co. warn that any knee-jerk reaction similar to the selloff seen after Trump was elected in 2016 could prove temporary.
On the other hand, if Harris wins and Democrats clinch both the House and Senate, there’s room for the peso to rally between 6% to 7%, the bank’s strategists say.
The reaction is likely to be “somewhat binary” for Latin American currencies as a whole, “with general weakness if Republicans take the White House and currency appreciation on a Democrat victory,” JPMorgan strategists including Gisela Brant and Tania Escobedo Jacob wrote in a note Tuesday. Still, the peso “would take the largest hit” from possible tariffs, they said.
