The Mexican peso has become the proxy for U.S. presidential election sentiment this year, and the trend was holding true on Wednesday.
In the last three months, the peso has swung back and forth between record lows and intermittent rebounds as Donald Trump has risen and fallen in election opinion polls. The Mexican currency is falling again this week as Trump's perceived odds of winning are nearing highs, according to PredictIt.org.
"People tend to agree that Mexican assets would underperform under a Trump presidency — that's clear for the market," said Andres Jaime, global FX and rates strategist at Barclays. He said the same sentiment supports a safe-haven trade, weakening the U.S. dollar against the Japanese yen and pushing gold prices higher.
Trump has called for building a wall on the Mexico-U.S. border, and said he would go as far as withdrawing the U.S. from the North American Free Trade Agreement.
Three-month performance
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 rose against the dollar during the first debate as Clinton appeared to gain momentum against Trump.
Ahead of the second presidential debate, the peso climbed more than 1.5 percent against the dollar after a leaked 2005 video of Trump's vulgar remarks about women stirred uproar around the Republican candidate's presidential campaign.
The peso-dollar then settled into a range, and as late as last Friday morning, markets seemed to have reached a broad complacency about the U.S. presidential election. Traders generally expected a market-friendly scenario of a Clinton win and Republican dominance in Congress, for continuation of the status quo with gridlock in the federal government.
That changed Friday afternoon. A revelation from James Comey, director of the Federal Bureau of Investigation, that his agency is looking at new emails associated with Clinton increased concerns that Trump could win the election instead. The Mexican peso immediately dropped as much as 2 percent against the dollar.
"Right now markets are debating whether that's enough to change the election or not," Jaime said. "That's why markets are very nervous about it. There's no certainty about it."