MEXICO CITY (Reuters) - Mexico’s peso dropped to a new low on Wednesday, falling more than 2 percent amid worries over the prospect of protectionist policies by U.S. President-elect Donald Trump and after Fed policymakers fretted he could stoke U.S. inflation.
The peso’s nosedive deepened after minutes from the Fed’s Dec. 13-14 meeting showed policymakers were concerned that quicker economic growth under Trump could require faster interest-rate increases in the United States.
On Tuesday, the peso was rocked by Ford Motor Co.’s decision to cancel a planned $1.6 billion investment in central Mexico, while fears over inflation have been stirred by a major fuel price hike that took effect on Jan. 1 - which President Enrique Pena Nieto on Wednesday defended.
“With this Ford announcement, markets are clearly seeing the risk of protectionist measures toward Mexico,” said Juan Carlos Alderete, a strategist at Banorte-IXE.
“A scenario in which Trump is very aggressive in terms of policies toward Mexico is not yet priced into the market, and the Ford announcement reflects that,” he added.
Trump’s election win drove the Mexican currency lower amid a sell-off fueled by his threats to scrap a trade deal between Mexico and the United States, and to levy punitive tariffs on Mexican-made goods.
He railed against Mexico on the campaign trail, threatening to halt transfers from Mexican nationals in the United States unless Mexico agreed to pay for the massive wall he has vowed to build on the U.S. southern border to keep out illegal immigrants.
The Mexican fuel price increase stemmed from the finance ministry’s decision to put an end to government-set prices, but the size of the rises also spurred some protests in Mexico, prompting speculation that the government could seek to stagger the increase.
So far, officials have ruled out any such move and Pena Nieto said on Wednesday that the government had been obliged to act given international oil prices.
Writing by Dave Graham; Editing by Simon Gardner and Alistair Bell
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