US neighbor’s currency took its biggest two-day tumble in more than 20 years as investors worry about how Trump policies will affect trade

This article is more than 3 years old

This article is more than 3 years old

Mexico’s peso sank again on Thursday, taking its biggest two-day tumble in more than 20 years as investors worried about how US president-elect Donald Trump’s policies could hit exports from Latin America’s second largest economy.

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The peso lost more than 3% to trade around 20.51 per dollar. That follows a major slump on Wednesday during a sell-off after Trump’s unexpected victory. The dollar has gained around 12% against the peso in the last two days, one of its biggest ever slumps since a 1994-1995 devaluation.

During his campaign, Trump vowed to rewrite or scrap the North American Free Trade Agreement (Nafta) on grounds that it favored Mexico at the expense of US workers. He has also said he would tax the money sent home from the United States by Mexican migrants, to pay for building a wall along the US-Mexico border.

Citigroup strategist Dirk Willer said he expected the peso, long a bellwether for investor sentiment about the US election, to keep weakening and range between 21 and 22 per dollar until it is clear what trade policies Trump will enact.

“It will be very hard for the peso to rally until you get some clarity on whether Trump really means business,” Willer said.

In the run-up to the election, a Reuters poll had forecast a Trump victory would knock the peso to around 21 per dollar.

Mexico chose not to intervene to stem peso losses the morning after Trump’s victory, a move many analysts had expected, although the central bank may raise interest rates next week for the fourth time this year.

Nonetheless, on Thursday, Mexico’s finance ministry said it would cut the amount of long-term peso bonds it would offer during the rest of the fourth quarter due to the increase in market volatility.

The finance ministry said it would cut issuance of fixed-rate and inflation-linked 10-year and 30-year peso bonds during the rest of the year, while it would increase the amount of short-term peso debt it offers in its weekly auctions.

The dollar has strengthened about 19% against the peso this year, even more than a nearly 17% gain for all of 2015.

During the last decade, the peso, as the most liquid emerging-market currency, has been a proxy bet for all emerging markets and risky investments like stocks. But the peso diverged for the second day in a row as stocks rose in the United States, Mexico’s top trading partner.

If Trump increases tariffs on Mexican imports into the United States as he promised during the campaign, it could impede growth for the Latin American country’s economy.