Mexican Peso Lags as EM Markets ‘Finally’ Wake Up to Trump Risks

The Mexican Peso has been underperforming compared to other emerging market currencies, a trend that can be attributed to the policies implemented by the Trump administration. This article explores the specific policies that have had the most significant impact on the Mexican Peso's performance and its response to these policies compared to other emerging market currencies.

The Trump administration's immigration policies have had a significant impact on the Mexican economy and peso. The construction of a border wall, stricter immigration policies, and the threat of deportation have negatively affected remittances, which account for a significant portion of Mexico's GDP. Additionally, the uncertainty surrounding these policies has increased risk perception and exchange rate volatility for the Mexican Peso.

Trump's trade policies, particularly the renegotiation of the North American Free Trade Agreement (NAFTA) and the implementation of the United States-Mexico-Canada Agreement (USMCA), have also affected the Mexican Peso. The uncertainty surrounding the trade agreement and the potential impact on Mexican exports have contributed to the peso's underperformance.

Furthermore, Trump's policies on Mexico's drug war and security cooperation have influenced the peso's performance. The U.S. government's focus on border security and the fight against drug trafficking has created uncertainty and increased risk perception for the Mexican Peso. Additionally, the U.S. government's decision to cut aid to Mexico has exacerbated the situation.

Lastly, Trump's fiscal policies, such as tax cuts and spending, have indirectly affected the Mexican Peso. The U.S. government's increased spending and tax cuts have led to a widening trade deficit, which has put downward pressure on the Mexican Peso. Additionally, the U.S. Federal Reserve's monetary policy has contributed to the Mexican Peso's underperformance, as the Fed's interest rate hikes have made the U.S. dollar more attractive to investors.

In conclusion, the Mexican Peso has lagged behind other emerging market currencies due to the Trump administration's policies on immigration, trade, security cooperation, and fiscal policies. The uncertainty and risk perception created by these policies have contributed to the peso's underperformance. As the U.S. and Mexican governments continue to negotiate and implement policies, the Mexican Peso's performance will remain a critical indicator of the bilateral relationship and the broader emerging market landscape.