The peso MXN= closed at a record low on Wednesday of 19.2745 per dollar after big losses that were partly fanned by concerns U.S. Republican candidate Donald Trump could triumph over his Democratic rival Hillary Clinton in November.
Those concerns deepened on Monday after a bout of pneumonia compelled Clinton to take a break from the campaign trail. The peso gained slightly on Thursday to trade around 19.2065 per dollar.
“If the presidential race in the United States keeps tightening, I think this will keep generating depreciation pressures,” said Alonso Cervera, an economist at Credit Suisse.
Two-month implied volatility on peso-U.S. dollar options contracts MXN2MO= on Thursday jumped to the highest since Britain’s surprise vote to leave the European Union in June. It was the second highest level since 2012.
The surge points to expectations of further volatility.
As Clinton’s lead over Trump narrowed through August into early September, the peso slumped about 6 percent.
Trump has threatened to unwind the North American Free Trade Agreement with Mexico and Canada and he has also pledged to build a border wall and make Mexico pay for it.
On Thursday, Mexican Finance Minister Jose Antonio Meade said the peso was being hit by speculation about the next move by the U.S. Federal Reserve, lower oil prices and uncertainty about the U.S. election.
But Meade said he was “unsure” if concerns about a Trump victory were specifically weighing on the currency.
Analysts said policymakers have few tools to defend the peso.
Earlier this year, Mexican authorities ended a dollar auction mechanism that had done little to help the currency, which has suffered since the slump in oil prices in late 2014.
The central bank hiked interest rates by 100 basis points this year, but the currency is already trading back at levels seen before the last hike in June.
Direct dollar sales would have little impact due to the size of the peso market, analysts said. Mexico’s peso is the second most liquid emerging market currency behind China’s yuan.
Further dollar sales would “just tickle (the peso) for a bit and then it would keep weakening,” said Pedro Tuesta, an analyst at 4Cast in Washington.
(Additional reporting by Jemima Kelly in London; Writing by Michael O’Boyle; Editing by Chris Reese)