Is the peso chasing the lira?

The Turkish lira is currently stealing the show. This is due to an unexpected price rise after the elections. Will the Mexican peso follow suit?

The antics that the Turkish lira made after the election are a reminder that the currency world doesn't only care about US President Donald Trump's trade wars. The Turkish currency shot up 25% against both the euro and the dollar on Monday, June 3. This is due to the fact that incumbent President Recep Tayyip Erdogan took the win.

That was a surprising reaction, given Erdogan is an outspoken opponent of rate hikes to curb inflation. He once called them 'the mother and father of all evil'. The central bank's reticent policy is a major reason why the lira has lost 10% of its value against the dollar over the past 75 years.

Populist in power
It could just be that the peso will soon also take a surprising direction, following the elections. The Mexican people will go to the polls on Sunday, July 1. The populist Andres Manuel Lopez Obrador is the clear favorite for the presidency. According to the Bloomberg Poll tracker, he has the support of more than 50% of voters.

That is more than double that of the centre-right candidate Ricardo Anaya. Most of Obrador's plans have a fairly left-wing slant, such as the fight against poverty. This worries currency traders, given that the price tag attached to it is all too often paid for through rising government debt.

scare
In this regard, Venezuela is the big specter. Socialist measures, such as subsidizing petrol, have pushed Prime Minister Nicolás Maduro's country to the brink of collapse. In addition, a tough confrontation is already emerging between Obrador and his American counterpart Donald Trump at the NAFTA-trade talks.

Several parties chose to err on the side of caution and exchanged their pesos for other currencies. Between the beginning of the autumn and mid-July, the Mexican currency fell by 15% compared to the dollar. However, the past 2 weeks have seen a remarkable recovery.

Striking winner
With a gain of 4%, the peso has been a notable winner in the currency world for the past 2 weeks. With this, the currency escapes the malaise of almost all others emerging markets, who are under pressure from concerns about the trade war and rising US interest rates.

The rebound is caused by traders taking profits on their positions, speculating on a further decline. This while there are also signals that Obrador wants to free up money by tackling corruption; instead of increasing the national debt. It is possible that the peso's revival will continue after the elections on Sunday, July 1.

Lawrence Martins

Laurens Maartens is a currency expert at the Dutch Payment and Exchange Company (NBWM). Maartens analyzes current currency developments and also provides lectures and training in the field of currency management.

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