LONDON, June 7 (Reuters) - Mexico’s peso strengthened to a near-one week high on Monday after mid-term elections confirmed President Andres Manuel Lopez Obrador’s MORENA party as the strongest force in the country, but with a reduced majority.
Markets had been watching out for Lopez Obrador retaining or extending his party’s super-majority, which would have allowed him to push through more wide sweeping changes, or that he could lose his majority in congress altogether.
“Neither of these seems to have occurred, so MXN has managed to chart a narrow path between two political tail risks this weekend,” said Kamakshya Trivedi, co-head of global FX, rates and EM strategy at Goldman Sachs.
The peso gained as much as 0.6% to 19.8473 to the dollar, making the currency an outlier among many emerging market currencies which were treading water against a steady dollar. The gains have seen the currency turn positive on the year, now up 0.2% in 2021.
The spread of Mexico hard-currency bonds over safe-haven U.S. Treasuries, as measured by the JPMorgan EMBI global diversified index, came in 1 basis point to 335 bps.
The election result was positive for institutional stability, said Gustavo Medeiros, deputy head of research at emerging market-focused fund manager Ashmore Group.
“Not losing by a large magnitude also means that he shouldn’t U-turn on his strategy, therefore the commitment to tight fiscal policies should remain, which is positive from a creditworthiness perspective and it’s something that Mexico investors have been happy about since (Lopez Obrador) took office,” said Medeiros. (Reporting by Karin Strohecker and Tom Arnold Editing by Peter Graff)