(Bloomberg) -- The US elections in November could cause more volatility for the Mexican peso than the upcoming vote at home, and investors should seek protection through a derivatives trade, according to JPMorgan Chase & Co.

The bank, which has an overweight recommendation for the peso, suggests selling a three-month USD/MXN digital call with a strike price of 18.50 and going long on a six-month digital call at the same strike price, strategists including Saad Siddiqui and Tania Escobedo Jacob wrote in a report released Wednesday. 

“Headline risk is likely to increase if the emphasis continues to be put on concerns around Chinese evasion of tariffs through Mexico,” the strategists said. “We prefer to hedge the risk of a more contentious approach to trade or migration” via a calendar spread, they said.

The Mexican peso has rallied 19% over the past 24 months to around 16.7 per dollar, emerging as the best-performing developing nation currency over the period due to low volatility and high interest rates. It’s one of the few major currencies gaining against the dollar this year, repeatedly defying calls it’s become too expensive and concerns positioning is too crowded. 

Mexico has presidential elections scheduled for June 2, and Claudia Sheinbaum, the candidate backed by President Andres Manuel Lopez Obrador, has been holding a large lead in opinion polls.

While President Joe Biden and Donald Trump haven’t taken a stance on the USMCA trade deal recently, the agreement that replaced Nafta in 2020 is up for review in mid-2026, the strategists said. 

Read More: Morgan Stanley’s Worst Mexico Scenario Has Peso Falling 11%

“Some analysts believe that a Trump administration will be more likely to invoke the USMCA review clause to push for better terms,” they said, adding that one cannot rule out “some degree of trade rerouting.” 

Despite the potential noise stemming from the US election, JPMorgan has a constructive view on the Mexican currency as it benefits from rising remittances and “geopolitical dividends” from the near-shoring trend, which is leading manufacturers to move facilities to Mexico.

Read More: Multinationals Are Seeking Protection Against the ‘Super Peso’

The peso “is no longer the high-beta risk proxy currency of old, but a more stable currency on a secular appreciation trend,” the strategists wrote. “This makes it one of the most attractive EM currencies to own over the medium term.”

--With assistance from Davison Santana.

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