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Mexican peso turns back the clock to reach pre-US election levels

The Mexican peso has achieved what many critics of US President Donald Trump are hankering after — it has managed to turn back the clock.

The currency had been on a roller-coaster ride in the initial weeks of Mr Trump’s presidency, breaching a historic low of 22 to the dollar. But by mid-session trading on Tuesday, it had erased all its post-election losses to trade at 18.25 to the dollar.

It has been a good week for the peso. The currency had its best post-US election day after Sunday’s key vote in the state of Mexico, where the leftist Morena party of Andrés Manuel López Obrador was narrowly defeated by the ruling Institutional Revolutionary Party.

Analysts had predicted a strong sell-off if Morena won because of Mr López Obrador’s populist stance. He is the front-runner so far in the 2018 presidential race.

But the peso is not out of the woods yet – far from it. Morena is alleging fraud in the state of Mexico race, although few expect any recount to reverse the results. The market is also watching the Federal Reserve and the pace of rate rises. And with talks on renegotiating the North American Free Trade Agreement expected finally to get underway as soon as August, any threats from Mr Trump would be felt first by the peso.

“I think the peso should be trading at 17.5, given the Mexican economy’s fundamentals … but I think [this new strengthening] is fragile … there’s a lot of volatility ahead,” said Carlos Serrano, chief economist at BBVA Bancomer.