The Mexican peso weakened further on Tuesday morning, depreciating to above 18 to the US dollar due to concern over election results that could allow the ruling Morena party and its allies to approve constitutional reform proposals with little or no negotiation with opposition parties.
Bloomberg data shows that the peso reached a low of 18.15 to the greenback early Tuesday, while Reuters data shows it dropped to as low as 18.20.
Compared to its closing position on Friday, the peso declined more than 6% to reach 18.15. The last time the currency traded at a weaker position was in October 2023.
At 10 a.m. Mexico City time, the peso had recovered to 17.83, a level slightly weaker than its closing position on Monday. But the currency had depreciated again to 17.96 to the dollar at 10:40 a.m, rounding slightly down to 17.94 just before 11 a.m.
The depreciation on Tuesday morning followed a significant weakening of the peso on Monday after election results showed that Claudia Sheinbaum was elected president of Mexico and Morena and its allies were on track to win large majorities in both houses of federal Congress.
“Quick count” results announced by the National Electoral Institute (INE) show that Morena, the Labor Party and the Ecological Green Party of Mexico easily won a two-thirds majority in the lower house of Congress, and could also reach a supermajority in the Senate.
A two-thirds majority in both houses would allow Morena and its allies to approve constitutional reform proposals without the support of opposition parties.
If the Morena-led coalition falls just short of a supermajority in the Senate — as some analysts and the federal government expect — it will only have to get the support of a few opposition senators to approve changes to the constitution.
Sheinbaum, who won the presidency in a landslide, will have immense power if her congressional allies pull off a supermajority in both houses of Congress.
President Andrés Manuel López Obrador would also benefit from such a situation for a brief period as the newly elected lawmakers will assume their positions in September, and the president doesn’t leave office until Oct. 1. López Obrador submitted a package of constitutional reform proposals to Congress in February.
The Monex financial group said Tuesday that the peso had depreciated further as markets continued to assess the implications of the election results for the economy.
Mexican bank Banco Base said that “risk aversion about Mexico” was persisting due to the election results.
“Risk aversion about Mexico continues after Morena candidate Claudia Sheinbaum won 59% of the vote in the presidential election” and the Morena-led coalition “won a qualified majority in the Chamber of Deputies and a large simple majority in the Senate, strengthening its position compared to the current legislature and increasing the probability of it being able to approve changes to the constitution,” Banco Base said.
The bank said that the news that Finance Minister Rogelio Ramírez de la O will remain in his current position when Sheinbaum takes office “has not been sufficient to calm the aversion to risk.”
Buoyed by a large differential between interest rates in Mexico and those in the United States, as well as strong incoming flows of remittances and foreign investment, the peso has performed well against the dollar for an extended period.
In April, the peso reached 16.30 to the dollar, its strongest position in almost nine years.
The low of 18.15 on Monday morning represents a depreciation of more than 10% for the peso compared to that level.
Mexican stock exchange also down
The Mexican Stock Exchange’s benchmark index fell more than 6% on Monday after the announcement of the election results. It was the worst single-day drop for the S&P/BMV index since the early days of the COVID-19 pandemic.
The index gained 1.6% shortly after the stock market opened on Tuesday.
President López Obrador asserted Tuesday morning that the market situation will soon “normalize.”
“There is a lot of responsibility in the management of public finances … and the Mexican economy is solid,” he said.
“The economic policy that we’ve been applying, and which has yielded very good results, won’t change,” López Obrador added.
With reports from Expansión and Aristegui Noticias
IMO there’s been too much investor speculation in the Peso. I get that Mexico is doing great and near-shoring is a big trend, but bidding it up to $16 MXN/USD doesn’t seem particularly helpful for the economy. I hope the exchange rate stays at around 18/USD, i.e. a strong Peso but not so strong that foreigners stop vacationing in Mexico or people/businesses reduce investments
What have you seen at that low? In Tijuana it’s been in the 16’s and 17’s for months.
Voice texting on my phone butchered: “When have you seen it that low?” Sorry.
It’s more than just the travel industry and possible loss of business investments. Nearshoring is strong in Mexico and the US has a big chunk of that right now.
The number one pipeline of money into Mexico is remittances from those working in the US back to their families in Mexico. The “superpeso” is hurting some of the most vulnerable families, those that depend on workers in the US to support entire communities. The real value of the money they receive has been around 25-35% less in the last few months. It also hurts those working in cities with heavy ex-pat investment, and retirees.
There isn’t any indication that Americans are not vacationing in Mexico. There have been record breaking arrivals this year. Mexico is still a bargain vs. the Caribbean and other beach destinations.
I would like to see the peso back at 24 like it was a few years ago. Mexico is like Japan in that it is a primarily an export Country and Japan has for many decades let their Yen drop low to attract buyers from around the world to buy their products cheaper than other export countries who have the same or similar products and every so often the other countries complain and put pressure on Japan to strengthen their currency to stay competave and Japans government buys up its own yen to strengthen it for a short time and then lets it weaken again they have been doing that for decades. Long story short, sometimes a weaker currency is the best thing a country can have to make a lot of money coming into the country. (Im a former Curreny trader on the Phily exchange)