UK pound (Brexit) has underperformed the Mexican peso (Trump) year-to-date

Since the beginning of 2016 the Mexican peso has weakened by a substantial -15.5% against the US Dollar, aggravated by Donald Trump winning the 2016 US presidential election on 8 November 2016. Just prior to the outcome of the US election the Mexican peso was down only 6.9% against the Dollar, having actually strengthened in the days leading up the election, supported by the expectation that Hilary Clinton would win. In the three days following Trump’s victory the peso weakened by a dramatic -12.5%, but has since stabilised somewhat.

While the Mexican peso has been one of the world’s worst performing emerging market currencies in 2016 (the worst is the Egyptian pound, -51.5% year-to-date, following devaluation), it has not been as weak as the UK pound. Year-to-date the UK pound has declined by -16.5% against the US Dollar, dramatically impacted by the outcome of the Brexit referendum. On the day of the Brexit vote (23 June 2016), the UK pound was actually slightly up year-to-date against the US Dollar (+0.6%), but declined by 11.1% against the Dollar in the two days following the Brexit decision being announced. This means that the UK pound is the worst performing developed market currency year-to-date and its performance is in-line with some of the weaker emerging market currencies. (See charts attached).

To be fair the Mexican peso has been under pressure for some time (the peso declined by -14.7% against the US Dollar in 2015) and was already significantly under-valued ahead of Trump winning the election. In contrast, the UK pound was significantly over-valued ahead the Brexit vote.

The US Dollar has gained 4% against the Euro from pre-election levels, and is likely to remain relatively strong ahead of the FOMC’s next rate decision on 14 December 2016.

Other notable currency developments include the Turkish lira falling to a record low this week. Incredibly, the Turkish lira has depreciated by 47% against the Dollar since the end of 2012. While this is not as weak as the Argentinian peso (-68.2%), Egyptian pound (-60.7%), and Russian ruble (-53.2%) over the same period, it is still one of the weakest emerging market currencies in recent years. In comparison, the Chinese currency has depreciated by only -9.5%.

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