Updated 4 weeks ago

The New Currency Champ Lives South of the Border

Can you guess which world currency has gained the most since Donald J. Trump’s inauguration as president?

Here’s a clue.

It has something to do with a “big, beautiful wall” on America’s southern border.

Of all major currencies, the one that has strengthened the most since Jan. 20, the day Mr. Trump became president, is the Mexican peso. In his inauguration speech, Mr. Trump pledged to “bring back our jobs” and “bring back our borders,” in veiled references to Mexico. Since that day, the Mexican peso has gained more than 15 percent.

What’s startling is that the peso served throughout the presidential campaign as a proxy for Mr. Trump’s political fortunes. The connection isn’t perfect, but the two have had a very close and extremely uncomfortable relationship. And at the moment, it has taken an unexpected turn.

Recall that on the night of Mr. Trump’s stunning election victory, the peso immediately took a brutal beating, plunging 12 percent against the dollar. That move was consistent with patterns throughout the presidential campaign. Whenever Mr. Trump’s prospects rose, the peso’s dived. Whenever he raised the volume on promises to build a towering wall on the Mexican border or to stamp out “bad hombres” or to crack down on immigration, the peso lost some of its value.

That’s why the data from the foreign exchange markets is so interesting. The peso isn’t being battered these days. It has been getting much stronger.

The peso may still be a proxy for the Trump presidency. If so, the foreign exchange rates may be telling us that the Trump administration’s policies are no longer being viewed as quite so harmful to Mexico — and to other emerging markets.

There are several possible explanations for this.

For a start, now that some important members of the Trump administration are in place and beginning to get down to work, the statements of policy makers other than the president are turning out to be far less troubling than those of the president himself.

While the administration continues to call for a renegotiation of the North American Free Trade Agreement, Peter Navarro, Mr. Trump’s top trade adviser, said on March 15 that the United States and Mexico can “develop a mutually beneficial regional powerhouse,” according to Bloomberg. What’s more, Wilbur L. Ross, the new commerce secretary, said in an interview on CNBC, “I believe that if we and the Mexicans make a very sensible trade agreement, the Mexican peso will recover quite a lot.”

No new trade agreement is in hand — the process for a possible renegotiation of Nafta has barely started — but the peso has indeed begun to recover. It trades at about 18.8 pesos to the dollar, almost within shouting range of where it stood just before Mr. Trump’s election.

Mexican officials have been talking up the peso, too. On Thursday, Mexico’s central bank governor, Agustín Carstens, told Bloomberg TV that the peso is still undervalued by up to 10 percent, even though “there’s still an important unknown there, which is that we don’t know how exactly the bilateral relationship between Mexico and the U.S. will shape up.”

He added, however, “Even taking that into account, and given the other fundamentals of the Mexican economy, I think the peso is still undervalued.” He also said that both the bank and the finance ministry are intent on stabilizing the peso. The central bank has raised interest rates in the last four meetings to 6.25 percent.

Since Inauguration Day, against a basket of world currencies, the peso was the top performer, with a gain of 15.2 percent, according to Bloomberg. Since the beginning of the year, it was second, with a gain of about 7.3 percent compared to 7.5 percent for the South African rand.

Other emerging-market currencies have fared well since the beginning of the year, too, and while the Mexican peso’s rise may be the most striking, it didn’t occur in isolation. The South Korean won, Taiwanese dollar and Brazilian real have had sizable gains, even though the United States Federal Reserve has been raising interest rates, a move that might have unnerved the currency markets.

Back in 2013 during the so-called taper tantrum, global investors pulled billions of dollars out of emerging-market economies after the Fed indicated that it would pull back on its expansionary monetary policies. That briefly set off fears of another deep financial crisis. This time around, the Fed has moved gingerly and financial markets have responded calmly.

The Mexican peso is the most widely traded of emerging-market currencies, and its buoyancy is partly a consequence of the rising tide for all such trades. The peso has also benefited from simple reversion to the mean — it had weakened for a long while, even before its unfortunate tangle with Mr. Trump — and was due for a jolt upward. Some analysts, including one at Goldman Sachs, say that the Mexican peso will probably head higher for a while.

Of course, there is an intriguing possibility. The strong peso may reflect an apparent disarray in the Trump administration, a situation that could easily be reversed.

During the campaign season, for example, the peso also surged. That happened in moments when Mr. Trump appeared to be weakest. On the evening of Sept. 26, for example, when Hillary Clinton performed particularly well in a debate and Mr. Trump performed poorly, the peso soared, along with Standard & Poor’s 500-stock index futures. Those moves were widely interpreted as an assessment of Mr. Trump’s chances in the presidential election.

The financial markets may well be voting now. But in at least one respect, finance is not like politics. The markets will vote again and again, thousands of times a day. The peso’s ascendancy won’t last forever.