Over the last year, since October 2015, the Mexican peso has lost 12.7 percent of its value against the dollar, becoming the second worst performing currency of Latin America, behind only the Argentine peso. Its value has dropped from 16.5 pesos per USD in October 2015 to 18.6 pesos per USD in October 2016. Its record low was on September 23rd, when it was valued at 19.8 pesos per USD.

Many have interpreted this downfall as a market reaction to the possibility of Trump’s victory and the potential subsequent renegotiation of NAFTA. Potential increments in trade tariffs are the top concern. The peso hit its lowest value in history when polling showed that Trump closed the gap with Clinton, and spiked 1.3 percent in less than an hour during the first presidential debate. Furthermore, when Trump’s lewd conversation about women broke, the peso gained 2.2 percent value in just a weekend.

Yet, even if the correlation between the United States’ electoral results and the value of the peso is striking, the reasons behind the peso’s weakness go beyond electoral politics. The peso has lost value systematically since 2014, mostly as a result of changes in oil prices, expectations about the Federal Reserve’s decisions, and Mexico’s domestic politics.

The losing streak of the peso started in late 2014 right after oil prices dropped. The price of a Mexican oil barrel had gone from more than $100 USD per barrel in mid-2014 to less than $48 USD, reaching values as low as $20 USD in late 2015. This is critical because oil represents 13 percent of all of Mexico’s exports, and 18 percent of its federal budget. It is estimated that for every drop of $10 USD in the price of oil, the Mexican government loses the equivalent of 0.1 points of GDP in income.

In addition to oil prices, increases in U.S. interest rates have made Mexico a comparatively less attractive place to invest. The peso has depreciated systematically in advance of the Fed’s monetary policy changes. Mexico’s Central Bank has tried to keep the peso attractive to investors by increasing interest rates as well. For example, in September 2016, Mexico’s Central Bank decided to raise its interest rate by 50 bps to stabilize the peso. Some analysts see this move as a mistake as it leaves Mexico with less policy tools to face not only the U.S. election but also the Fed’s future increases in interest rates.

Finally, Mexico’s internal politics have also impacted the peso. With 22 percent approval, Mexico’s President Enrique Peña Nieto is the least popular president in recent history, and rising debt is causing a decline in confidence in Mexico’s fiscal stability. Over the last five years, government debt has grown at a yearly average rate of 14 percent, impacting the trust of investors. As of August 2016, 29 percent of Mexican public debt was contracted in dollars, which means increases in the value of the dollar directly affect the viability of public finances. Recently, S&P Global Ratings revised Mexico’s outlook to negative, citing debt as one of its concerns.

Yet, for as much as the peso is being hit by the U.S. election, oil, international monetary policy, and domestic politics, the impact of the peso’s devaluation is having quite differentiated effects on remittances, inflation, and exports.    

The amount of total remittances from the United States to Mexico has solidly increased. About 17.6 billion dollars have arrived in Mexico as remittances during the first eight months of 2016, 95.5 percent coming directly from the United States. This is an increase of 6.6 percent with respect to the same months in 2015. In pesos, this is equivalent to an increase of 24.1 percent. Remittances are the second most important source of external income for Mexico and have increased at a faster rate than the peso has depreciated.

The most feared consequence of the weakness of the peso, inflation, has not materialized. In 2015, Mexico’s inflation was at a record low of 2.3 percent yearly, and most analysts expect that 2016 will close “in target,” with an inflation of around 3.2 percent. Even if production prices face an inflation of 5.5 percent, consumption prices remain unaffected. It seems that the decline of the cost of oil and gas and Mexico’s reforms have counterbalanced the rise in imports prices by providing consumers with lower prices in energy and telecommunications.

Finally, Mexico’s exports have not increased. Textbook economics would predict that a cheaper peso would make Mexico’s exports less expensive and thus more competitive. Yet, during the first eight months of 2016, non-oil exports (mostly manufacturing) have accounted for only 229.5 billion dollars, a decrease of -2.5 percent with respect to the same months of the previous year. Indeed, when valued in pesos, exports have increased (13.9 percent) but still at a lower rate than the peso has lost value. This may be related to the fact that (a) a large share of Mexico’s manufacturing uses imported goods as production inputs; (b) the United States’ growth has been low; and (c) other currencies have depreciated along with the peso, making Mexico comparatively less attractive.

Overall, the peso is losing value, not only because of the uncertainty related to the U.S. elections, but because of low oil prices, the Fed’s monetary policy decisions, and Mexico’s domestic economic and political issues. Yet, despite expectations, the peso’s depreciation has increased remittances to Mexico but has neither affected peso inflation nor significantly increased Mexican manufacturing exports. As long as the value of the peso is not affecting other economic variables, its impact on U.S.-Mexico relations will remain limited.