By Gabriel Ojimadu, Alpari
The key event of yesterday was Trump’s press conference. The US president-elect spoke little of the economy and didn’t give any new information about economic stimulus. Due to this, the dollar fell against many key currencies: the euro, yen, franc and pound.
One of the few currencies which did weaken against the dollar after Trump spoke was the Mexican peso. The USD/MXN has lifted above the psychological level of 22 and, in doing so, has updated its historic maximum. This is down to the fact that the president-elect confirmed his intention to build a wall along the US’ border with Mexico, as he had promised throughout his election campaign. The wall would mean a harsher clampdown on illegal immigration. Moreover, it could see the introduction of import duties for Mexican goods, a reduction in employment for Mexicans in the US and the transferral of production sites from Mexico to the US. This fall in economic linkage could amount to a significant blow to the Mexican economy.
In the past few weeks the Bank of Mexico has spent around $2 billion of its foreign reserves on supporting the peso. This has only made the fall for the currency a little less sharp, not being able to reverse the trend. When Trump was confirmed as the president-elect, the peso fell 25% against the dollar. If the Bank of Mexico doesn’t undertake additional measures (e.g. raising interest rates or launching dollar swaps), the weakening of the peso is set to continue.