Mexican peso drops amid fragile trade talks and a hit from ratings agencies

The Mexican peso dropped against the dollar on Thursday after two ratings agencies lowered their outlook on the country amid heightened trade tensions with the U.S.

Moody’s Investors Service on Thursday cut the outlook on the Government of Mexico’s ratings to negative from stable, citing “unpredictable policymaking” and “lower growth.” Fitch slashed Mexico’s rating to near junk status, noting the worsening credit profile of the state oil company Pemex.

The peso was down as much as 1.3% against the greenback on Thursday.

The weakness in the currency also came as President Donald Trump’s 5% tariff on all Mexican goods is set go into place Monday, if the country doesn’t make efforts  further curb illegal migrants from coming to the U.S.

“The policy framework is weakening in two key respects, with potential negative implications for growth and debt,” Jaime Reusche, senior credit officer at Moody’s said in a statement. “First, unpredictable policymaking is undermining investor confidence and medium-term economic prospects. Second, lower growth, together with changes to energy policy and the role of PEMEX, introduce risks to Mexico’s medium-term fiscal outlook.”

The peso rebounded from the initial losses earlier this week on the hopes that Mexican officials could reach a deal on immigration issues with the White House before the tariffs kick in. The talks between the two countries resume on Thursday afternoon.

Former Commerce Secretary Carlos Gutierrez told CNBC Thursday that he doesn’t see how a comprehensive agreement can be made over the weekend.