(Bloomberg) -- Mexico’s peso will likely bounce back to 17 per dollar in the next few months after a surprise result in the election caused it to slide nearly 5% in two days, said one of the currency’s top forecasters.

The selloff that followed Sunday’s Mexico election may be overdone, as the factors that’s made the peso one of the most attractive currency trades still remain, according to Bartosz Sawicki, market analyst at Polish brokerage Cinkciarz.pl, also known globally as Conotoxia. 

The world’s best-performing major currency up until late May, the peso has led global losses this week after Claudia Sheinbaum and her party won a landslide victory in Sunday’s election, granting her a strong mandate investors had not seen coming. 

“I am looking for a bounce, but not for a full comeback,” said Sawicki, whose forecast on the Mexican peso ranked top in Bloomberg’s first-quarter accuracy ranking. 

“The landslide victory of Morena’s really changes the political background and paves the way for some constitutional reforms, which are perceived obviously as markets unfriendly,” said Sawicki who, like most of his counterparts, didn’t account the strong showing for Morena in congress. He previously had expected the peso to trade around 16.5 per dollar in the second quarter of 2024. 

The peso traded around 17.5 per dollar Wednesday, strengthening as much as 2% and trimming some of this week’s losses. To hit Sawicki’s forecast level of 17, it would have to strengthen about 3% more. 

The peso benefited from Mexican central bank’s reluctance to cut interest rates, Sawicki said, adding that the hawkish stance “will remain in place and this will act in favor of the Mexican peso.”

Policymakers in Mexico kept borrowing costs unchanged in May at 11% and analysts expect them to cut by 25 basis points in June. The prospect of a slowdown in the US economy and weakening of the dollar due to the possibility of rate cuts may also help lift the peso.

Still, it won’t be a straight path of recovery for the peso, as the recent outbreak of political risks from elections from Mexico to South Africa and India dampen the appeal of investing in emerging markets.

“I’m really surprised by the scale of the moves in emerging markets right now” Sawicki said. “Obviously, the markets after such a shock and shake out will be more reluctant to deep dive into currency trades in emerging markets.”

The US election, which will happen shortly after Sheinbaum takes office in October, is the next “huge risk event” for the peso, he said, adding that the market will be bracing for an overhaul of trade and immigration policies that can hurt the currency if Donald Trump wins.

“All the investors that we spoke to in the last couple of days, they might look for other carry trade opportunities in different regions,” Sawicki said, “or will probably try to wait until US presidential elections in the fourth quarter.”

(Updates with pricing and additional details starting in paragraph four.)

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