Mexico peso drops nearly 3%, Sheinbaum landslide raises reform worry
2024.06.03 07:10
By Karin Strohecker
LONDON (Reuters) – Mexico’s peso slipped nearly 3% against the dollar on Monday after Claudia Sheinbaum won a landslide victory in the presidential election and the ruling coalition looked poised for a super-majority that markets fear could bring constitutional change.
The peso hit a fresh five-week trough of 17.5020 to the dollar, its worst drop since September 2020, LSEG data showed.
The latest losses mean the currency has weakened 2.4% since the start of the year, a sharp turnaround for the unit, which was, until recently, one of the few emerging markets currencies to have gained ground against a strong dollar.
“In Mexico, the question is whether the Morena party has done so well that it could command a super-majority and try to pursue market non-friendly policies of constitutional reform,” said Chris Turner, global head of markets at ING.
Sheinbaum, a climate scientist and former mayor of Mexico City, won the presidency with between 58.3% and 60.7% of the vote, according to a rapid sample count by the electoral authority, in what is set to be the highest vote percentage in Mexico’s democratic history.
Her victory had been widely anticipated, but the scale of Morena’s gains and the prospect of the ruling coalition potentially clinching a super majority has taken markets by surprise.
Securing a two-thirds super majority in both houses of Congress would allow the group to pass constitutional reforms without opposition support.
“That would enable Sheinbaum and Morena to push through constitutional amendments, including those proposed by President Lopez Obrador prior to the election,” said Jason Tuvey, deputy chief emerging markets economist at Capital Economics.
Lopez Obrador had doubled the minimum wage, reduced poverty and oversaw a strengthening peso and low levels of unemployment – successes that made him incredibly popular.
Sheinbaum has promised to expand the welfare policies that drove his popularity and her triumph, but this will be a tricky task while inheriting a hefty budget deficit and low economic growth.
