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Reuters/Edgard Garrido
On pins and needles.
SINKING FEELING

Mexico has an emergency plan for a Trump win

By Ismat Sarah Mangla

Mexico is holding on tight in the event of a Donald Trump presidency.

The country has prepared an economic contingency plan to respond to the depressing effect on the Mexican peso if Trump beats Hillary Clinton in the US election.

“If the adverse scenario manifests itself, it’s possible that Mexican authorities will respond in some way,” Agustin Carstens, the governor of Mexico’s central bank, told Milenio TV in Mexico. “It’s a contingency plan that we’re talking with the finance minister about.”

Carstens didn’t provide details of the contingency plan, but it’s no secret that the ascendancy of Trump would be disruptive to Mexico’s currency and economy. The Republican presidential candidate has threatened to build a border wall between Mexico and the US, end trade deals with the country, and impose a 35% tariff on Mexican goods sold in the US.

The peso’s value relative to the dollar has already fallen by 9% this year, and the currency has fluctuated inversely to Trump’s popularity in the polls, making it the favorite proxy (paywall) for betting on the US presidential race:

Capital Economics estimated that a Trump win could lead to a 25% decline in the peso’s value since mid-August, when Hillary Clinton was the favored candidate to win. That would parallel (paywall) the drop in the sterling’s value against the dollar since the Brexit vote this summer.

Switzerland is bracing for the opposite effect. The Swiss franc, a safe haven in times of economic uncertainty, rose to its highest level against the euro since the end of June last week, in line with rising support for Trump. The Swiss National Bank confirmed that it had intervened in the currency market to weaken the Swiss franc post-Brexit.

“What I can say is just like with the Brexit vote, we are ready,” a member of the central bank’s governing board said today. “My team is prepared and the Swiss National Bank will be there, if necessary, to intervene to stabilize the currency markets.”

Turkey, Brazil and a number of other countries are also bracing for the negative fallout of a Trump win. The resulting spike in volatility and investor flight from emerging markets would likely only worsen under Trump’s protectionist policies.