Written by Karen Strohecker
LONDON (Reuters) – The Mexican peso fell more than three percent against the dollar on Monday after the ruling party had a surprisingly strong performance in the elections and appeared on track to win a landslide that markets fear could lead to constitutional change and the reduction of checks and balances.
Claudia Sheinbaum won a landslide victory in Sunday's presidential election, which was widely expected. But the scale of the gains made by the ruling Morena Party and its allies surprised markets, as some feared it would pave the way for the party to pass constitutional reforms without the support of the opposition.
London Stock Exchange data showed that the peso recorded a new five-week low at 17.5020 against the dollar, its worst decline since September 2020. By 1224 GMT, the peso trimmed some of its losses to trade at 17.4708 to the dollar.
“In Mexico, the question is whether the Morena party has done so well that it can get an overwhelming majority and try to pursue market-unfriendly constitutional reform policies,” said Chris Turner, head of global markets at ING.
The latest losses mean that the currency has fallen by 2.4% since the beginning of the year, a sharp turnaround for the unit, which until recently was one of the few emerging market currencies to post gains against the strong dollar.
There were also signs that Mexican stocks were expected to come under pressure, with the iShares MSCI Mexico ETF down 3.2%.
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 quick sampling count by the Electoral College, in what is expected to be the highest vote share in a Mexican democratic election. date.
Jason Tuvey, deputy chief emerging markets economist at Capital Economics, said that obtaining a two-thirds majority in both chambers of Congress “will enable Sheinbaum and Morena to advance constitutional amendments, including those proposed by President Lopez Obrador before the elections.”
In February, López Obrador proposed sweeping constitutional reforms, including measures to reform the judiciary, electoral law, pensions, and environmental regulations.
Throughout his term, López Obrador successfully doubled the minimum wage, reduced poverty, and oversaw a strengthening of the peso and lower levels of unemployment—successes that earned him incredible popularity.
Sheinbaum promised to expand the welfare policies that had boosted his popularity and victory, but this would be a difficult task as he would inherit a large budget deficit and low economic growth.
