Mexican peso plunges more than 12% to record low

Posted at 3:09 AM, Nov 09, 2016

The Mexican peso tumbled against the U.S. dollar as Hillary Clinton conceded the presidential election to Donald Trump.

"Shock and awe in the FX markets. We're having painful flashbacks to Brexit — no one is entirely sure where the bottom is at the moment, so most participants are in a 'sell first, ask questions later' mood," Karl Schamotta, director of FX research and strategy at Cambridge Global Payments, said in an email. 

The peso was near 20.18 versus the greenback as of 2:40 a.m., ET, Wednesday morning, after hitting a record low earlier in the session.

Hillary Clinton conceded the election to Trump early Wednesday morning, and NBC projected the New York businessman would win the needed 270 electoral votes for becoming president. 

"A Trump victory increases uncertainty, which is bad for emerging markets until we get some clarity on his policy plans," Athanasios Vamvakidis, head of G10 FX strategy in Europe at Bank of America Merrill Lynch, said in an email. 

"Mexico in particular is vulnerable because of Trump's statements against trade and NAFTA. EM currencies tend to overshoot, so I would not try to catch a falling knife at this point," he said. "However, I do believe that the markets are likely overreacting now and that in few days this may prove to be a buying opportunity."

The dollar-peso ended Tuesday's session at 18.297. See what the peso is doing here.

"This is risk off. It is worrisome," said Marc Chandler chief currency strategist at Brown Brothers Harriman, of the violent move in the peso. 

Trump won the key Florida race, and Ohio, while Clinton won Virginia. 

The currency cross was higher in early evening trading as the first election results rolled in but then turned lower as the results showed Trump was leading in Florida.

"Democrats (are) losing some other states that were supposed to be solid" wins for the party," Andres Jaime, global FX and rates strategist at Barclays, said in an email. He was referring to races in Michigan and Wisconsin, where the results were still too close to call. 

As the first state projections were announced earlier, the peso briefly hit its strongest level in more than two months against the U.S. dollar. 

The peso has become arguably the most closely watched market proxy for U.S. presidential election sentiment this year. In the last three months, the peso has swung back and forth between record lows against the U.S. dollar and intermittent rebounds as Donald Trump has risen and fallen in election opinion polls. 

As the evening began, the currency cross was briefly near 18.19, hitting lows not seen since Aug. 26 when the dollar traded as low as 18.1563 against the peso.

Earlier in the day, the peso had traded only about half a percent stronger against the dollar, after touching a two-month high against the greenback. 

As traders awaited the election outcome, they watched a lawsuit that Trump filed Tuesday and which a judge subsequently rejected. A Nevada court on Tuesday afternoon rejected the suit, in which the GOP candidate claimed earlier in the day that some early voters were improperly allowed to vote.

In morning trading, the peso jumped more than 0.5 percent against the dollar. Marc Chandler, chief currency strategist at Brown Brothers Harriman, pointed at the time to a trend line at 18.50, and strategists said it appeared that markets were getting more comfortable with the idea that Clinton could win.

"Dollar/peso will be the absolute proxy for the election, and if we see massive moves in dollar/peso by around 8 o'clock in the evening, it will mean the exit polls are strongly indicating she has a wrap on it," said Boris Schlossberg, managing director, forex strategy at BK Asset Management.

Trump has called for building a wall on the Mexico-U.S. border, and said he would go as far as withdrawing the U.S. from the North American Free Trade Agreement.

The Mexican peso hit record lows against the U.S. dollar in late September as the polls indicated a tightening race between Trump and Hillary Clinton ahead of the first presidential debate. The peso rose against the dollar during the first debate as Clinton appeared to gain momentum against Trump.

Ahead of the second presidential debate, the peso climbed more than 1.5 percent against the dollar after a leaked 2005 video of Trump's vulgar remarks about women stirred uproar around the Republican candidate's presidential campaign.

The peso-dollar then settled into a range, and as late as the morning of Oct. 28, markets seemed to have reached a broad complacency about the U.S. presidential election. Traders generally expected a market-friendly scenario of a Clinton win and Republican dominance in Congress, for continuation of the status quo with gridlock in the federal government.

That changed the afternoon of Oct. 28. A revelation from James Comey, director of the Federal Bureau of Investigation, that his agency is looking at new emails associated with Clinton increased concerns that Trump could win the election instead. The Mexican peso immediately dropped as much as 2 percent against the dollar and drifted lower in the following days.

But just two days before the election, Comey said in a letter to Congress that the bureau stands by its July conclusion that no criminal charges were warranted against Clinton for her use of a private server. The peso surged more than 2 percent against the greenback Monday to trade around its highest in nearly two weeks.