What does Trump have to do with it?
Mexico may be home to one of the more stable economies of Latin America, but the peso holds the dubious distinction of being the worst performing currency of 2016. There are two main reasons: first, the ongoing concernsabout the ability of state-owned oil giant Pemex to service its gargantuan debts; and second, the currency’s role as a general proxy for global financial risk, which is clearly on the ascendance.
As the world’s most traded emerging market currency, the peso is often prone to steep ups and downs. However, in recent months, the currency’s movements have been even more volatile than usual. From October through February, the peso plunged 33% to a historic low of 19 pesos to the dollar. It prompted the Bank of Mexico to unleash a surprise rate hike in a desperate bid to smoke out currency speculators.
For a couple of months the intervention seemed to have worked, as the peso floated back up to 17 pesos to the dollar. But at the beginning of May, the trend reversed. In just six weeks, the peso lost 10%. It currently trades at 18.95, a whisker’s breadth of setting a new historic low.
Things could be about to get even uglier, thanks largely to political developments north of the border…
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