JPMorgan Says Mexican Peso Vulnerable to ‘Unpredictable’ US Vote

(Bloomberg) -- JPMorgan Chase & Co. cut a long-standing bullish call on the Mexican peso, warning traders should be mindful of risks stemming from a “highly-unpredictable” US presidential election.

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The bank downgraded the peso to market-weight from overweight amid potential risks related to the vote that will pit Kamala Harris against Donald Trump next month. Traders are anxious about what will be the next US leader’s approach on topics ranging from tariffs to the upcoming review of the USMCA trade deal.

“Although we do not see a Trump victory as a clear negative for MXN in the medium term, we acknowledge that the currency is vulnerable to the election results,” strategists including Tania Escobedo Jacob and Saad Siddiqui wrote in a note.

Traders, they say, need more visibility on the trade policies that would be pursued by the US to assess the path for the currency in the medium term. In Mexico, the delivery of a “reasonable” budget next month is also necessary for the currency to keep stabilizing.

The peso has had a roller-coaster year so far, going from being the best performer in emerging markets to one of the worst after a landslide win from the ruling party in June elections fanned fears of sweeping reforms that could erode checks on its power.

Since taking office this month, President Claudia Sheinbaum helped ease volatility by making nods to the private sector, saying foreign and private investments will be respected, according to JPMorgan. The currency could face additional relief under certain trade scenarios, especially as positioning looks “clean” and valuations are appealing, strategists say.

“We are biased to look to re-engage in bullish MXN trades after the US election,” they said.

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