UBS UBS Group AG

MEXICO CITY—The Mexican peso swooned early Monday on news that U.S. presidential candidate Hillary Clinton was suffering from pneumonia, which raised concerns that her rival Donald Trump would gain in the polls.

But by the close of trading in Mexico City, fundamentals such as higher oil prices and a less hawkish outlook for U.S. interest rates helped the currency recover lost ground and close stronger from Friday.

The peso was quoted in Mexico City at 18.8450 to the dollar, according to Infosel, compared with 18.8890 Friday. In early trade, the currency sank to its weakest level against the dollar since late June, with the rate moving to 19.1870 to the dollar, Banco Base said in its daily report.

"In the morning, the peso lost ground on news at the weekend that put into question the health of Hillary Clinton and could increase voter preferences for Donald Trump... which would particularly affect the Mexican peso," Banco Base said.

The peso has been sensitive to the Republican candidate's moves in polls, since a focus of his campaign has included plans to build a wall on the U.S.-Mexican border to keep out illegal immigrants and calls to renegotiate terms of the North American Free Trade Agreement, which he says has benefited Mexico to the detriment of the U.S.

Mr. Trump's visit to Mexico late last month to meet with Mexican President Enrique Peñ a Nieto did little to alleviate those concerns, and was widely seen benefiting the U.S. candidate while further eroding the already dismal approval ratings of his host.

It also led to the resignation of Mexico's finance minister, who while unpopular at home was widely credited by investors with promoting key economic overhauls of recent years.

"The recent developments have reinforced our conviction on our under-weight on the Mexican peso, especially in the run up to the U.S. presidential election," UBS said in a report Monday.

The news of Mrs. Clinton's health and comments from several U.S. Federal Reserve officials ahead of next week's policy meeting contributed to the peso's roller-coaster ride Monday.

Higher U.S. interest rates would make dollar investments relative more attractive, putting Fed moves among principal risks for the Mexican peso.

Federal Reserve Bank of Atlanta President Dennis Lockhart said economic conditions warranted a serious discussion on the possibility of raising interest rates at next week's meeting, without putting a time on any rate move, while his counterpart at the Minneapolis Fed, Neel Kashkari, said on CNBC he saw no rush for the Fed to do anything on the economy. Fed governor Lael Brainard said there are several reasons for rates to remain steady for a while longer.

Banco Base noted that the peso-dollar exchange rate has gone above 19 pesos to the dollar before this year, but failed to hold for long above that level. Still, "the peso will remain sensitive to Fed monetary policy and the electoral process in the U.S. for the remainder of September and October."

Write to Anthony Harrup at anthony.harrup@wsj.com

(END) Dow Jones Newswires

September 13, 2016 01:25 ET (05:25 GMT)

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