Mexico peso tumbles as
Trump wins U.S. presidency in upset
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[November 09, 2016]
By Michael O'Boyle and Noe Torres
CITY (Reuters) - Mexico's peso recovered somewhat from a 13 percent
selloff on Wednesday after Republican Donald Trump's surprise victory
over Democratic rival Hillary Clinton for the U.S. presidency, as
investors expected action by the central bank to support the currency.
Trump's threats to rip up a free trade agreement with Mexico and to tax
money sent home by migrants to pay for building a wall on the southern
U.S. border have made the peso particularly vulnerable to events in the
race for the White House.
Mexico's currency <MXN=D2> weakened by more than 13 percent in after
hours and Asian trading on Wednesday, breaking past 20 pesos per dollar,
which would be its biggest fall since the 1994 Tequila Crisis.
However, the peso pulled back to trade around 8.5 percent weaker at
19.88 per dollar early on Wednesday, helped by expectations that
Mexico's central bank and finance ministry would announce measures to
support it at a joint media conference at 0700 local time (0800 EST/1300
"Very hard times are coming to Mexico," said analyst Gabriela Siller of
Mexican bank BASE.
"We think the central bank could intervene by raising its interest rate
because the (peso) movement was so strong, above all in order to head
off imminent capital flight," Siller said.
Five economists told Reuters they expected the central bank to raise its
benchmark interest rate by an impromptu 75 to 150 basis points on
Wednesday if Trump wins.
"I don't think a Trump scenario was taken seriously in the last days by
the market," said Ernesto Revilla, an economist at Banamex and the
government's former chief economist. "Hopefully there are some
contingency plans by authorities and they can take measures to protect
the Mexican economy."
Central bank head Agustin Carstens last week said Mexico was prepared
for an "adverse" result in the U.S. election, which he has said could
hit the country like a "hurricane."
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A board displaying the exchange rates of Mexican peso against the
U.S. dollar and the euro is seen at a foreign exchange house at the
international airport in Mexico City, Mexico November 8, 2016.
Mexico has more than $175 billion in foreign reserves, and Carstens said
last month he would consider using a $90 billion International Monetary
Fund flexible credit line "in the event of an external shock."
The central bank has already raised its rate three times this year,
lifting it to 4.75 percent to anchor inflation expectations following a
sharp depreciation of the peso.
Trump's win caught the market off guard. The peso rallied nearly 1.4
percent on Tuesday before official election results began to be released
as the market bet Clinton would win.
(Additonal reporting by Jamie McGeever; Writing by Gabriel Stargardter;
Editing by Simon Gardner and Lisa Von Ahn)
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