The Mexican peso, lovingly dubbed the “Superpeso” for its impressive performance in recent years, is facing some challenges as traders unload their positions in high-yield currencies in favor of the U.S. dollar. This shift has caused the peso to plummet by as much as 2% in recent days, making it one of the worst-performing currencies in the market.
The sudden drop in the peso can be attributed to rising funding costs and increased geopolitical risks, which have led to higher volatility in the market. Even the once-stable Mexican peso is not immune to these market forces, as investors are now reconsidering their positions due to recent spikes in volatility and a stronger dollar.
Miguel Iturribarria, a strategist at BBVA Mexico, expressed concern over the current environment of risk aversion and lower rate differentials, which are impacting the attractiveness of carry trades involving the peso. BBVA predicts that the peso could reach 17.40 per dollar in the next two months and end the year at 18.20 per dollar, from the current rate of 17.
The surge in implied volatility has made the Mexican peso less appealing for carry trades, with some traders shifting their focus to the Colombian peso as a more attractive option in Latin America. The increase in bullish positions on the peso has only exacerbated the currency’s downward trend, as leveraged fund positions reached their highest level since March 2023.
While the long-term outlook for the Mexican peso remains positive, with the country’s close ties to the U.S. and the impact of nearshoring providing support, the currency is expected to remain under pressure until traders unwind their positions. Christian Lawrence, a strategist with Rabobank in New York, predicts that the USD/MXN pair could retest recent lows in the coming weeks as the market adjusts.
Despite these challenges, the Mexican peso continues to be closely watched by investors and analysts alike, as its performance could have implications for the broader emerging markets. The world will be watching closely to see how the “Superpeso” weathers the storm in the coming days and weeks.