The Mexican peso significantly decreased on Monday, as concerns arose among investors regarding potential trade disputes following U.S. President Donald Trump's recent threat to impose high tariffs on Colombia.
Trump announced on Sunday that the White House would implement 25% tariffs on Colombian imports, particularly crude oil, coffee, and flowers. This decision came after Bogota refused to accept U.S. military planes carrying deportees back.
After negotiations between Colombian and U.S. diplomats, an agreement was reached for Bogota to receive the deportees, avoiding tariffs.
Arif Joshi, co-head of emerging markets debt at Lazard Asset Management, highlighted the implications of Trump's actions, stating, "The weekend's events not only increase volatility and risk but also decrease currency valuations against the U.S. dollar."
Amidst the uncertainties in the market, analysts from Wells Fargo suggested shorting the Colombian peso with a target exchange rate of 4,600 per dollar.
With looming deadlines for Mexico and Canada to meet Trump's demands, Graham Stock from RBC Global Asset Management noted an increased perception of tariffs being imposed.
The Mexican peso experienced a sharp decline on Monday, nearly erasing its gains for the year. Mexico faces challenges in addressing Trump's demands related to immigration, drug cartel violence, trade agreements, and illegal drug shipments.
The unexpected targeting of Colombia by Trump may hint at political strategies. Aaron Gifford, senior EM sovereign analyst at T. Rowe Price, highlighted the market's attempts to anticipate potential trade conflicts.
Investors remain cautiously optimistic about emerging market debt, with Shamaila Khan from UBS Asset Management emphasizing that the headline risks around tariffs may not necessarily materialize.