As the debate kicked off, the peso had briefly extended earlier gains, with the dollar-peso pair trading 2 percent lower, with the peso hitting its strongest levels against the greenback since September 13.
"Markets assume that the weekend's events are lowering the odds of Trump winning the election. Therefore, (the peso) as the purest proxy for the U.S. election is reacting accordingly," said Andres Jaime, global FX and rates strategist at Barclays.
Ahead of the Sunday night debate, the dollar-peso pair traded about 1.6 percent lower after a leaked 2005 video of Donald Trump's vulgar remarks about women stirred uproar around the Republican candidate's presidential campaign.
The Mexican peso hit record lows against the U.S. dollar in late September as the polls indicated a tightening race between Trump and Hillary Clinton ahead of the first presidential debate. The peso also rose against the dollar during the first debate as Clinton appeared to gain momentum against Trump.
"The Mexican peso was sold heavily when Trump's poll numbers improved and closed the gap a few weeks ago. As that poll momentum ran out of steam more recently, the Mexican peso and emerging markets recovered to some degree," said Carl Forcheski, director of corporate FX sales at Societe Generale.
Trump has called for building a wall on the Mexican-U.S. border, and said he would go as far as withdrawing the U.S. from the North American Free Trade Agreement.