The Mexican peso strengthened against the dollar on Monday primarily due to the withdrawal of US president Joe Biden from the presidential race.
The rise followed the Peso registering its worst week since the June 2 elections.
Analysts suggested Biden’s withdrawal from the race has stabilized market volatility, positively impacting the currency.
The Mexican peso has appreciated to 17.9583 units per dollar from 18.0825 units, marking a 0.69% increase.
The Dollar Index (DXY), measuring the dollar against six currencies, fell 0.02% to 104.37 units.
Last week, the peso registered its worst weekly result since the local elections. The peso fell by 46.02 cents or 2.61% from the Friday before’s close of 17.6223.
To be sure, since June, when it was at 18.2862, it had recovered 20.37 cents or 1.11%.
Friday last week, the exchange rate ended at 18.0825 per dollar. This represented a decrease of 10.37 cents or 0.57% over Thursday’s close.
Why is the peso cheering Biden’s withdrawal from elections?
Analysts believe Biden’s withdrawal increases the chances of a stronger Democratic performance in the upcoming November elections, which is seen as favorable by markets due to concerns over Trump’s protectionist policies.
During his political campaigns and presidency, Donald Trump has made several promises and statements regarding Mexico that have contributed to unease and uncertainty in the country and hold significant implications for the bilateral relationship and market sentiments.
These include Trump reiterating his stance on imposing tariffs on Mexican goods if Mexico does not take more stringent measures to curb illegal immigration and drug trafficking.
He has also promised to reinstate and expand his previous immigration policies, including the “Remain in Mexico” policy and increased border security measures while also suggesting the possibility of further renegotiating trade agreements with Mexico to ensure they are more favourable to the US.
Fitch Ratings and Mexico’s economic outlook
Fitch Ratings had last week affirmed Mexico’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB-‘ with a Stable Outlook.
The rating was supported by a prudent macroeconomic policy framework, stable and robust external finances, and government debt/GDP that Fitch projected will remain below the ‘BBB’ median; landslide presidential election victory that signalled broad policy continuity, among other factors.
However, it did factor in a potential risk from the US election.
“The US election is a source of uncertainty, for example, from Former President Trump’s stated intention of imposing a universal tariff of 10% on all US imports. Increased trade tensions in such a scenario could leave Mexico vulnerable, given that 80% of its exports are destined for the US. Immigration will remain a point of friction between the two countries, and a material curb could affect remittance flows into Mexico (3.5% of GDP in 2023),” Fitch said.
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