The Mexican peso depreciated sharply on Monday morning after election results showed that Claudia Sheinbaum was elected president of Mexico and the ruling Morena party was on track to win large majorities in both houses of federal Congress.

The peso was trading at under 17 to the US dollar on Sunday but depreciated to as low as 17.7 on Monday morning according to Bloomberg data. In percentage terms, the peso declined around 4%.

At 10 a.m. Mexico City time, the peso had recovered somewhat to trade at 17.58 to the dollar but was back up to 17.69 by 11 a.m.

Gabriela Siller, director of economic analysis at Mexican bank Banco Base, said on X that the peso had depreciated due to “greater risk.”

She wrote that “80% of peso vs dollar transactions are speculative” and that “the risk-reward trade-off” for investors had changed due to the election result.

“With a majority in the Congress, Morena and its allies could change the constitution,” Siller said.

Janneth Quiroz, director of analysis at the Monex financial group, said on X that the peso depreciated due to “nervousness” among investors following the announcement of preliminary election results.

Those results showed that Morena and its allies, the Labor Party and the Ecological Green Party of Mexico, were likely to win a two-thirds majority in the lower house of Congress, and could also achieve 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.

That possibility “generated concern” in the market, said Quiroz, who noted that the peso had depreciated to its weakest position since last November.

Sheinbaum’s victory was widely expected as she maintained a commanding lead in the polls throughout the three-month-long campaign period. But Morena and its allies weren’t widely expected to win two-thirds majorities in the Chamber of Deputies and the Senate.

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 17.7 on Monday morning represents a depreciation of around 8% for the peso compared to that level.

Mexico News Daily