JPMorgan Chase & Co. has revised its long-standing optimistic outlook on the Mexican peso, downgrading the currency from “overweight” to “market weight” as the U.S. approaches a potentially tumultuous presidential election. With candidates Kamala Harris and Donald Trump set to face off, the bank urges traders to approach with caution amid the “highly unpredictable” electoral environment, noting potential implications for U.S.-Mexico trade relations and overall economic stability.
JPMorgan’s strategists, including Tania Escobedo Jacob and Saad Siddiqui, emphasized in a recent note that while a Trump victory is not automatically detrimental to the peso in the medium term, the currency remains susceptible to potential shifts in policy. “While we do not see a Trump victory as clearly negative for the Mexican peso in the medium term, we recognize that the currency is vulnerable to the election results,” they noted.
The potential policy changes range from tariff adjustments to a review of the United States-Mexico-Canada Agreement (USMCA), which has significant implications for Mexico’s export-driven economy. With the stakes high for both candidates on these issues, traders are eagerly watching the election to gain insight into the next U.S. administration’s stance on trade with Mexico.
For Mexico, clarity in the U.S. approach is essential, and JPMorgan suggests that the Mexican peso’s stability is also contingent on the Mexican government’s upcoming budget proposal. Due in the next month, this budget must present a “reasonable” framework to maintain investor confidence, a critical factor in the peso’s ongoing stabilization. The peso’s performance this year has been volatile, shifting from emerging markets’ top-performing currency to one of the poorest-performing currencies following the ruling party’s recent electoral victory. Fears of potential reforms that could impact the balance of power and reduce checks and balances have stoked investor concerns, contributing to the peso’s instability.
In response to this, Mexico’s new President, Claudia Sheinbaum, has sought to reassure investors. Upon taking office, Sheinbaum has conveyed her commitment to the private sector, emphasizing that foreign and private investments will be respected, according to JPMorgan’s report. The strategists noted that this gesture has helped to ease some of the market’s volatility.
JPMorgan’s report suggests that further stabilization in the peso may occur under certain trading conditions, especially given current attractive valuations and a relatively “clean” trading position for the currency. “We are inclined to resume bullish trading on the Mexican peso after the U.S. elections,” the strategists added, signaling optimism for post-election opportunities.
As markets brace for potential shifts in U.S.-Mexico relations under a new administration, the peso’s trajectory remains uncertain. However, with cautious policy management on both sides, the currency may weather this storm, particularly if clarity on trade policies and economic agreements emerges from the new U.S. administration.
Impact of a Trump Victory
A Trump victory could create short-term volatility for the peso due to concerns over a potential shift back to protectionist policies and stricter immigration enforcement, which were hallmarks of Trump’s first administration. His previous tenure saw tensions over tariffs, most notably in 2019, when he threatened tariffs on Mexican imports to leverage Mexico’s cooperation on immigration control. Such policies caused fluctuations in the peso and may raise market apprehensions about renewed economic barriers or renegotiation of trade terms.
However, some analysts argue that Trump’s familiarity with USMCA and continuity in policy, albeit stringent, could lend some predictability to trade relations, which the peso market values. Markets are also aware that Trump, in his initial term, stopped short of imposing lasting tariffs on Mexican goods, and with this history, might expect more restrained moves this time around.
Impact of a Harris Victory
Kamala Harris’s approach is expected to be less volatile on trade and immigration policies, emphasizing cooperative agreements that support regional stability. Under a Harris administration, the peso may benefit from a more stable trade relationship, as Harris is likely to maintain or potentially even strengthen USMCA’s framework. This stability could support peso strength by fostering investment confidence and reducing fears of unpredictable tariffs or other trade disruptions.
Harris’s focus might also shift toward addressing labor standards and environmental clauses within the USMCA, which could impact industries in Mexico but would likely be less disruptive to the currency compared to outright trade threats. A steady approach from the U.S. would support a more predictable environment for Mexican exports, likely benefiting the peso over time.
JPMorgan’s Take
According to JPMorgan, the peso remains vulnerable to election outcomes regardless of the winner. Strategists at the firm suggest that while a Trump victory might not severely harm the peso medium-term, the uncertainty leading up to the election has prompted a downgrade in peso outlook. The bank’s analysts recommend a cautious approach for peso trading until clearer policy positions emerge post-election.
JPMorgan Chase & Co. has revised its long-standing optimistic outlook on the Mexican peso, downgrading the currency from “overweight” to “market weight” as the U.S. approaches a potentially tumultuous presidential election. With candidates Kamala Harris and Donald Trump set to face off, the bank urges traders to approach with caution amid the "highly unpredictable" electoral environment, noting potential implications for U.S.-Mexico trade relations and overall economic stability.
