Mexico markets slump on worries about Trump inquiry and trade deal

FILE PHOTO: Mexico's President Andres Manuel Lopez Obrador attends a news conference at the National Palace in Mexico City, Mexico, May 31, 2019. REUTERS/Henry Romero

MEXICO CITY (Reuters) - Mexico’s peso and stock market slumped on Wednesday in response to an impeachment inquiry against U.S. President Donald Trump, with trade experts warning the probe risked derailing the passage of the USMCA trade deal through U.S. Congress.

Mexico's peso MXN= slipped 0.9% versus the dollar to an almost three-week low against the dollar and the benchmark stock index .MXX fell 1.24%, with banks citing the move against Trump by Democrats on Tuesday as sapping investor appetite for risk.

“The start of the legislative investigation reduces the probability that there is bipartisan cooperation for the approval of USMCA,” Mexico’s Banco BASE bank said in a client note.

Canada, the United States and Mexico signed the agreement last year, meant to replace the trillion-dollar North American Free Trade Agreement (NAFTA). Ratification of the deal formally known as the U.S.-Mexico-Canada Agreement had already stalled in the U.S. Congress because of Democrat concerns that its labor and environment provisions were not enforceable.

Mexican President Andres Manuel Lopez Obrador warned the U.S. political calendar meant the deal should be passed quickly, not left until the eve of the November 2020 presidential election.

“It’s better if this gets resolved soon. It’s in the interest of all three nations,” Lopez Obrador told journalists during his daily media briefing on Wednesday.

Mexican trade negotiator Kenneth Smith also warned the impeachment effort could further dampen hopes of a fast legislative passage.

“It could put at risk the legislative agenda in Congress, including ratification of USMCA,” said Smith, who led negotiations for the deal.

Republican U.S. Senator Chuck Grassley on Tuesday urged Democrats not to use impeachment proceedings against Trump to delay action on USMCA.

Reporting by Anthony Esposito and Miguel Angel Lopez; Editing by Frank Jack Daniel and Alistair Bell