Imelda Medina/Reuters
- The Mexican peso could drop by as much as 25% if NAFTA collapsed, according to Edward Glossop, Latin America economist at Capital Economics.
- The Mexican peso was under pressure earlier this week after the Trump administration came out swinging for the fourth round of NAFTA re-negotiations.
The Mexican peso could drop like a ton of bricks if NAFTA collapses.
In a recent note to clients, Edward Glossop, Latin America economist at Capital Economics, said the currency could tumble to at least 22 per dollar, but probably further, to about 22.50 or 23 per dollar if the trade deal were to collapse. That would be a drop of about 20% to 25% from recent levels.
If the deal survives, however, the currency could climb to about 17.50 per dollar, he added.
The Mexican peso was under pressure earlier this week after the Trump administration came out swinging in the fourth round of NAFTA re-negotiations, prompting renewed fears that the talks would break down and cause the agreement to collapse altogether.
The US reportedly presented a number of tough proposals, including raising the auto rules of origin to 85%, up from the current 62.5%, and adding a sunset clause, which would lead to NAFTA expiring every five years unless all three countries agree to extended the deal.
One trade official told reporters Saturday that “the atmosphere is complicated,” and added that his fears about some “pretty harsh, pretty horrible” demands from the US were coming true.
The peso has long moved in conjunction with uncertainties over US trade policy, which you can see in the chart shared by Glossop below. In fact, the currency dropped to about 22 per dollar around the time of President Donald Trump’s inauguration, back in January, as fears of a NAFTA collapse spiked.
The peso was down by 0.35% at 18.8550 at 3:57 p.m. ET.
Capital Economics
NOW WATCH: RAY DALIO: There’s one asset every portfolio must have
