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When Donald Trump blusters, the Mexican peso trembles

But when he stumbles, as during Wednesday night’s presidential debate, the currency gains

The Mexican peso is one of the most volatile emerging currencies.
The Mexican peso is one of the most volatile emerging currencies.

The Mexican peso has become the barometer of Donald Trump’s presidential election campaign, falling when the Republican Party’s hopeful has done well in the polls and then rising as he drops in popularity.

On Wednesday evening, as the property magnate battled against his Democratic Party rival Hillary Clinton in the last of three presidential debates before US voters head to the polls on November 8, the peso clawed back some of the ground it has lost in recent months, rising to 18.45 against the dollar, suggesting that as far as Mexico is concerned, Clinton won the debate.

Trump’s radical positions on Mexican migration and trade could severely disadvantage the United States’ southern neighbor if he wins, so a stronger Mexican peso reflects lower market expectations of a Trump victory.

The good news for Clinton supporters is that the value of the peso has steadily increased

Little wonder: he has said he would pull the United States out of NAFTA, a free trade area between the United States, Canada and Mexico. He has also pledged to build a wall along the US border with Mexico to prevent the entrance of illegal immigrants.

It isn’t just Mexico that is nervous about a possible Trump win: investors in the United States have expressed negative views about the prospect of Trump occupying the White House, due to his hostility toward global trade deals and fears that he will stoke geopolitical tensions.

Many of the dips in the value of the peso in recent months coincide with positive moments for Trump, or negative ones for Clinton. For instance, in March, as Trump emerged as the likely nominee, the currency’s value plummeted. In May, when Senator Ted Cruz dropped out of the race, it dropped again.

In July, when Trump pulled nearly even in the polls with Clinton after the Republican National Convention, the peso took another plunge. And after Clinton admitted she was ill with pneumonia, the Mexican currency dropped again.

When Trump visited Mexico in late August, meeting with President Enrique Peña Nieto, an event that turned out to be deeply embarrassing to the government there, the peso fell again.

Investors in the US are also worried about Trump occupying the White House

The threat of a Trump win began to hit the peso in the summer, and by September, it was close to the psychological barrier of 20 to the dollar.

But since then the good news for Clinton supporters is that the value of the peso has steadily increased, suggesting confidence in Clinton’s ability to pull off the win in November.

However, after its brief rally on the back of Clinton’s Wednesday night performance, by Thursday morning, the Mexican peso was back in trouble, falling to 18.90 after oil prices plunged.

The peso is one of the most volatile emerging currencies: concerns the Federal Reserve (Fed) might raise interest rates is hitting it hard. In June, after the UK’s Brexit vote, the Bank of Mexico raised interest rates to halt the decline of the currency. Rates went from 3.75% to 4.25% and it remained stable throughout the summer.

However, Mexico’s central bank hiked interest rates again in September, this time to 4.75%, in a bid to protect a weak peso and rein in inflation.

English version by Nick Lyne.

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