Mexico's Peso Weakens After Presidential Election

The Mexican peso has dropped in value by more than 4 percent against the U.S. dollar after Claudia Sheinbaum won a supermajority in Sunday's presidential election.

The local stock market tumbled by more than 2 percent after Sheinbaum's win, which, while predicted, saw a wider-scale victory than anticipated.

Currently, the peso is worth nearly 1/18th of the U.S. dollar, marking a 4.1 percent decrease after the election. The value largely dropped due to concerns about a constitutional reform that would hurt the larger economic market.

"It's not that gains for the Morena Party in Mexico were completely unexpected, but the number of elections they were able to win is sending shockwaves not just through the country, but through their financial market, as well," Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, told Newsweek. "The fear is the party will advance some constitutional reforms that won't be friendly to the country's markets, which caused both stocks and the peso to see sizable declines on Monday."

Previously this year, the peso showed signs of strengthening against the U.S. dollar as one of the few currencies gaining ground against the higher-value American dollar.

Sheinbaum previously served as mayor of Mexico City and claimed somewhere between 58.3 percent and 60.7 percent of the national vote, the highest vote percentage in Mexico's history.

"Investors got spooked, and when the big money folks get the jitters, currencies get treated like a kid's playball, bouncing all over the place," Michael Ryan, a finance expert and the founder of michaelryanmoney.com, told Newsweek. "The ruling Morena party didn't just win the presidential race, they lapped the competition. Claudia Sheinbaum scored a straight-up landslide victory. And they managed to nab a super-majority in Congress too."

As president, Sheinbaum will have to navigate a significant budget deficit in Mexico as well as a long history of economic turmoil. But she also has a supermajority power to enforce many significant changes in Mexico.

She's vowed to expand welfare policies and also sought to "calm down" markets during her acceptance speech, according to a JPMorgan client note.

The established order is very much up in the air now, Ryan said, and the peso is just a reflection of that.

"If I was a betting man, I'd wager we've got some tumultuous times ahead," Ryan said. "The peso plunge is likely the first hint of a broader emerging market currency cyclone brewing."

Despite the fears of constitutional reform, Beene said no one truly knows how Sheinbaum's presidency is set to influence the larger economy.

"It's impossible to know what reforms can actually pass to bring about change," Beene said. "At the same point, investors do have a reason to be cautious about potential actions that could harm the value of the broader market."

The "overwhelming support" for Sheinbaum was not expected, and now the market is reacting, said Kevin Thompson, a finance expert and CEO/founder of 9i Capital Group.

"One thing the market despises is uncertainty, and that is what you get when things like this happen," Thompson told Newsweek.

"Markets are concerned that the new ruling government will bring reform that it deems unfavorable to markets. The consequence, you see, is market dislocation and variability in the peso until a semblance of positive sentiment comes forth from the new administration."