LONDON, June 3 (Reuters) - Mexico's peso tumbled more than 3% against the dollar on Monday after the ruling party scored a surprisingly strong election showing and looked poised for a super-majority that markets fear might bring constitutional change and diminish checks and balances.
Claudia Sheinbaum won a landslide victory in Sunday's presidential election, which was widely expected. But the scale of the gains for the ruling Morena party and its allies took markets by surprise, with some fearing this would pave the way for the group to pass constitutional reforms without opposition support.
The peso hit a fresh five-week trough of 17.5020 to the dollar, its worst drop since September 2020, LSEG data showed. By 1224 GMT, the peso had trimmed some of its losses to trade at 17.4708 to the dollar.
"In Mexico, the question is whether the Morena party has done so well that it could command a super-majority and try to pursue market non-friendly policies of constitutional reform," said Chris Turner, global head of markets at ING.
The latest losses mean the currency has weakened 2.4% since the start of the year, a sharp turnaround for the unit, which was, until recently, one of the few emerging markets currencies to have gained ground against a strong dollar.
There were also indications that Mexican stocks were expected to come under pressure, with the iShares MSCI Mexico ETF down 3.2%. (EWW.P), opens new tab
Sheinbaum, a climate scientist and former mayor of Mexico City, won the presidency with between 58.3% and 60.7% of the vote, according to a rapid sample count by the electoral authority, in what is set to be the highest vote percentage in Mexico's democratic history.
Securing a two-thirds super majority in both houses of Congress "would enable Sheinbaum and Morena to push through constitutional amendments, including those proposed by President Lopez Obrador prior to the election," said Jason Tuvey, deputy chief emerging markets economist at Capital Economics.
In February, Lopez Obrador had proposed sweeping constitutional reforms, including measures to overhaul the judiciary, electoral law, pensions, and environmental regulations.
Throughout the course of his tenure, Lopez Obrador had doubled the minimum wage, reduced poverty and oversaw a strengthening peso and low levels of unemployment - successes that made him incredibly popular.
Sheinbaum has promised to expand the welfare policies that drove his popularity and her triumph, but this will be a tricky task while inheriting a hefty budget deficit and low economic growth.
Reporting by Karin Strohecker, graphic by Sumanta Sen; editing by Amanda Cooper and Bernadette Baum
