The rally that has sent the Mexican peso to the highest in almost two years hit a bump on Wednesday as US President Donald Trump was said to be musing an exit from the North American trade pact.
The currency erased gains early on Wednesday after people familiar said Trump has asked aides why he shouldn't withdraw from the trade agreement with Mexico and Canada, which he signed during his first term. He has stopped short of flatly signaling that he will do so, the people said, speaking on condition of anonymity to describe internal discussions.
The move is the first sign of the volatility that may hit the currency once the deal comes up for renegotiation later this year. The peso has proved remarkably resilient to the trade tensions sweeping the world under Trump. The currency is the second-best performing in emerging markets since the so-called Liberation Day on April 2, when Trump unveiled a series of tariffs, lagging only the South African rand. That's in part due to Sheinbaum's skill at negotiating with her US counterpart.
"If there is truth to that and it's not just negotiating tactics, the Mexican peso could be restrained going forward," said Brendan McKenna, an emerging market economist and currency strategist at Wells Fargo. "Quitting USMCA would be a big hit for the peso."
Even reassuring comments from Trump's Mexican counterpart, Claudia Sheinbaum, that the trade deal is important to both the US and Mexico and that the US is unlikely to leave failed to fully reverse the move in the peso. It was trading little changed as of 1:00 p.m. in New York, lagging most Latin American peers.
The Mexican currency has also been boosted by increased appetite for emerging-market assets, with investors searching for yield and the dollar wavering under Trump's back and forth on policy.
USMCA talks, which are set to resume this summer, will likely start to become a bigger driver now, according to Ning Sun, a senior emerging-markets strategist at State Street Global Markets in Boston. Volatility related to the USMCA review will eventually weigh on the peso, BBVA Mexico wrote in a report last month.