The Mexican peso led a decline in emerging market currencies on Wednesday as traders readjusted their positions ahead of the US election next month.
The prospect of Donald Trump’s return to the White House is causing jitters among investors after he defended his proposals to impose tariffs on goods made overseas to protect American jobs during an interview with Bloomberg News on Tuesday.
The Mexican peso slipped to its lowest level against the dollar in a month as Trump said automakers building plants in Mexico pose a “serious threat” to the US. The Brazilian real also underperformed, as traders jumped ahead of the government’s promise to control spending, while Colombia’s peso and Peru’s sol lagged their counterparts.
“The risks of a Trump presidency and tariffs have been greatly reduced,” said Jayati Bhardwaj, strategist at TD Securities. “It seems like the market is finally waking up to that risk.”
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Expected price volatility in emerging market currencies next month is estimated at the highest level in a year and a half. Trump’s return to the White House would pose a serious threat to the currencies of developing countries as traders rush to buy dollars. Bhardwaj, Mexican peso and Chinese yuan will be hit the most due to tariff threats.
“Markets are now in a period of extreme volatility ahead of the US elections,” Citigroup strategists wrote in a note Wednesday. “Rates will continue to trade in a range, and the broader dollar will remain at slightly stronger levels.”
Meanwhile, money managers are paying attention to Federal Reserve officials, who will decide on the next rate move just two days after the Nov. 5 vote. Atlanta Fed President Raphael Bostic said late Tuesday that the U.S. economy will slow but remain strong, adding that inflation may see some upside on the way down. Monetary managers are looking to US unemployment data on Thursday for further signals on monetary policy.
Emerging markets stocks also declined as they were hit by both US election shocks and a grim outlook for the Chinese economy.
Shares of Taiwan Semiconductor and Samsung Electronics were the biggest losers in the MSCI index, the benchmark for developing world shares, as the chief executive of Dutch chipmaker ASML said he expected the slow recovery in the chip market to continue “until 2025.” .
In China, shares on the CSI 300 continued to fall, approaching a technical correction as traders concluded that economic stimulus announced over the weekend will not be enough to boost consumption. Meanwhile, indexes of Latin American equities slipped for a second day.
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