Mexico peso hits record low on Trump uncertainty, more weakening feared

MEXICO CITY (Reuters) - Mexico's peso MXX=D2 slumped to a new low against the dollar on Tuesday, fueled by concern about the policies of U.S. President-elect Donald Trump, and comments by an economic think tank that further depreciation is "almost inevitable."

Mexican pesos and U.S. dollar banknotes are seen in this picture illustration, November 3, 2016. REUTERS/Edgard Garrido

The peso was the worst-performing major currency last year, weakening 20 percent against the dollar as Trump closed in on the U.S. presidency. It skidded further to a low of 21.8275 per dollar by mid-afternoon, dipping 2 percent.

The depreciation has accelerated in the first few days of 2017 after Trump told major automakers last week to expect high taxes on vehicles made in Mexico that are sold in the United States as he attempts to bring back manufacturing jobs.

As long as uncertainty persists about what Trump will do once he takes office on Jan. 20, the peso could face more pressure.

“It’s foreseeable. I’d say almost inevitable that it keeps on depreciating,” said Jose Angel Gurria, secretary general for the Organization for Economic Co-operation and Development at a news conference in Mexico City.

The peso has fallen by more than 5 percent against the dollar since Jan. 1, according to Reuters data.

Gurria, who served as Mexico’s finance minister from 1998 to 2000, said Mexico’s central bank, which sold $2 billion in dollar reserves last week to support the peso, had helped prevent a deeper crash. But he warned it could not burn through too many greenbacks.

Many analysts fear the peso’s fall is fueling higher inflation, which picked up to its fastest pace in 2 years last month.

Consumer prices could be further fanned by a double digit gasoline price hike this month that has spurred protests, looting and road blockades.

“Without a doubt, it will have a one-off inflationary impact,” Gurria said, referring to fuel prices. Mexico’s government has said the hike would not hit inflation.

Trump has vowed to withdraw from a joint trade deal with Mexico if he cannot renegotiate it in the United States’ favor, and he has threatened hefty tariffs on Mexican-made goods.

At the launch of his campaign in mid-2015, the New York real estate magnate riled many Mexicans by pledging to build a border wall to keep out illegal immigrants, accusing Mexico of sending rapists and drug runners across the border.

Trump said on Friday that Mexico would repay the United States for the wall, a day after news emerged that his transition team was exploring getting the Republican-led Congress to vote to approve funding.

Mexican Foreign Minister Luis Videgaray on Tuesday restated the government’s position that his country will not pay for the wall, and he noted that uncertainty over future trade relations is impeding investment to Mexico.

Editing by Steve Orlofsky and Diane Craft