Mexican Peso Suffers Worst Day In Four Years After Sheinbaum Wins Presidential Elections

The Mexican Peso experienced its worst single-day performance in four years following Claudia Sheinbaum‘s victory in the presidential election held on Sunday.

As of 08:15 a.m. in New York, the peso had dropped 3.4%, reaching 17.60 per dollar. This marks the sharpest decline since June 11, 2020, when it fell by 4.1% in a single day.

The IPC, the main index of the Mexico's stock market, as broadly tracked by the iShares MSCI Mexico ETF EWW, closed 0.3% lower on Friday.

Chart: Dollar-Peso Rate Witnesses A Sharp Rally After Sheinbaum’s Electoral Result

Historic Win For Sheinbaum

Sheinbaum, a former mayor of Mexico City and a close ally of President Andrés Manuel López Obrador, will become Mexico’s first female president after securing 58.5%-60% of the vote, according to Mexico’s National Electoral Institute.

This would be the highest percentage of votes in Mexico's democratic history, giving her a lead of more than 30 percentage points over the conservative candidate Xóchitl Gálvez of the National Action Party.

The President of Mexico wields significant executive powers, serving as head of state, head of government, and commander-in-chief of the armed forces.

The president has the authority to veto legislation, although Congress can override this veto with a two-thirds majority in both chambers.

While the judiciary is independent, the president influences it through the appointment of Supreme Court justices, subject to Senate approval

Why Is The Mexican Peso Falling?

Sheinbaum's landslide victory, securing 60% of the vote, suggests a strong mandate from the electorate, enhancing her political legitimacy and capacity to implement her agenda.

Her overwhelming support may also provide greater influence over the legislative process and policymaking.

Her coalition, comprising the parties of Morena, PT, and PVEM, maintains a strong majority in both the Chamber of Deputies and the Senate.

If the coalition gets a supermajority (two-thirds of Congress), market participants will see it as a potential source of risk, as it could enable the new president to pursue constitutional reforms initiated by her predecessor, Andrés Manuel López Obrador.

Sheinbaum’s campaign has emphasized the expansion of social programs, economic development, and public energy control, while also focusing on women’s issues and infrastructure improvements. To combat drug cartel violence, she plans to enhance police training and coordination with prosecutors, leveraging her successful crime reduction strategies from her tenure as mayor of Mexico City.

Sheinbaum believes in preserving the independence of the central bank to ensure economic stability and control inflation. Therefore, it is highly unlikely that she will use her influence to interfere with the decisions of the Mexican Central Bank.

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Photo by Jorge Aguilar on Unsplash