While everyone in America was eagerly awaiting Donald Trump's speech to Congress on Tuesday, some investors were nervous about what he might say on trade. On the day of the speech, the Mexican peso fell by nearly 1 percent against the U.S. dollar, which would be a significant jump if it wasn't for the fact that the peso has fallen by 12 percent since the U.S. election. It's the second worst-performing currency other than the Turkish Lira since Nov. 8. At press time Friday morning the US dollar/Mexico peso spot rate was 19.84.
For many years the peso had been considered an emerging market proxy — it tends to move depending on what's happening in other developing nations, not just on what's occurring at home — but Trump's rhetoric on trade and immigration is now causing the currency to shift based on American politics. That's putting its proxy status at risk.
"Mexico is starting to trade more idiosyncratically," says Leah Traub, head of currencies at Lord Abbett, a New Jersey-based investment firm. "I don't necessarily think Mexico will be a proxy for all emerging markets, like it was in 2015 and early 2016."
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It's been a proxy currency in part because it's the easiest currency to trade, says Taub. It's the most liquid instrument without capital controls, and it's the most traded currency by volume.