Karin Strohecker
LONDON (Reuters) – Mexico’s peso fell more than 3% against the dollar on Monday after the ruling party posted a surprisingly strong election performance and looked poised for a supermajority that markets fear could lead to constitutional changes. and reducing checks and balances.
Claudia Sheinbaum won a landslide victory in Sunday’s presidential election that many expected. But the scale of the gains by the ruling Morena party and its allies has caught markets by surprise, with some fearing it will open the door for the party to push through constitutional reforms without opposition support.
The peso hit a new five-week low of 17.5020 per dollar, its worst fall since September 2020, according to LSEG data. By 1224 GMT, the peso had recouped some of its losses to trade at 17.4708 per dollar.
“The question in Mexico is whether Morena’s party has done so well that it could win a supermajority and try to push through market-unfriendly constitutional reform policies,” said Chris Turner, ING’s global head of markets.
The latest losses mean the currency has weakened 2.4% year to date, a sharp turnaround for a currency that until recently was one of the few emerging market currencies to strengthen against the strong dollar.
There were also signs that Mexican shares were expected to come under pressure, with the iShares MSCI Mexico ETF falling 3.2%.
Sheinbaum, a climate scientist and former mayor of Mexico City, won the presidency with 58.3% to 60.7% of the vote, according to a quick sample count conducted by the election body, considered the highest percentage of the vote in democratic Mexico. story.
Getting a two-thirds majority in both houses of Congress “will allow Sheinbaum and Morena to push through constitutional amendments, including those proposed by President Lopez Obrador before the election,” said Jason Toovey, deputy chief economist for emerging markets at Capital Economics.
In February, López Obrador proposed sweeping constitutional reforms, including measures to reform the judiciary, election laws, pensions and environmental regulations.
During his tenure, López Obrador doubled the minimum wage, reduced poverty and oversaw a strong peso and low unemployment – successes that made him incredibly popular.
Sheinbaum has promised to expand the welfare policies that fueled his popularity and her triumph, but it will not be an easy task as she inherits huge budget deficits and low economic growth.