The Mexican peso slumped to its lowest level in nine months today, falling 1% to 19.725 pesos to the U.S. dollar just before midday.
News agency Reuters cited high inflation, the threat to investment posed by fiscal reform in the United States and corruption scandals in the ruling Institutional Revolutionary Party (PRI) — that could play into the hands of leading presidential contender Andrés Manuel López Obrador — as reasons for the drop.
The peso hasn’t been this low since March and this week is likely to be the worst for the currency since United States President Donald Trump took office in January. The peso has shed 6% of its value this month alone.
However, it is still stronger than just before Trump was sworn in when it traded at a historic low of 22 pesos to the dollar.
Renegotiation of the North American Free Trade Agreement (NAFTA) amid pressure from Trump to rework the treaty as well as threats to terminate the deal altogether have also placed downward pressure on the peso, with analysts predicting that the trend will continue in 2018.
Banco Base analyst Gabriela Siller highlighted the volatility of the currency based on the U.S. president’s rhetorical whim.
“With the level it’s at now, it’s likely that it will go to 20 pesos, especially if Trump speaks out about NAFTA again,” she said.
Inflation rose slightly above analysts’ expectations in the first half of December to 6.69%, continuing pressure on the Bank of México to maintain high interest rates which currently stand at 7%.
United States tax reform, signed into law today, is also concerning because there are fears that Mexico may lose out on some investment opportunities to its northern neighbor.
Citibanamex analysts pointed to a new and still developing corruption scandal in the PRI as another factor for the weakness of the peso.
An adjunct secretary to the PRI presidency, Alejandro Gutiérrez, was arrested Wednesday, accused of diverting taxpayer money to a political campaign in the northern state of Chihuahua.
Gutiérrez has denied the allegations but analysts believe that it could provide a further boost to third-time presidential aspirant López Obrador, who has vowed to stamp out corruption and inequality while trying at the same time to shake off an image that he is anti-business.
A recent survey by polling company Parametria showed that he had an 11-point lead over his rivals. They include declared pre-candidates José Antonio Meade for the PRI and former National Action Party (PAN) president Ricardo Anaya, who is running under a coalition the PAN formed with the Democratic Revolution Party (PRD) and the Citizens’ Movement Party.