Mexico’s peso sank to a record low on Tuesday, settling at 18.9350 per U.S. dollar, and the decline is expected to continue. But who to blame, if you’re earning money in pesos?
“There is a lot of panic in the global market,” said Benito Berber, an analyst based in New York. He said the peso’s slump “doesn’t have a lot to do with Mexico itself.”
Foreign holdings of Mexican peso bonds surged since the 2009 financial crisis. Now those bondholders, who were cheering on Mexico’s financial policies, are partly responsible for driving the peso weaker as they put on hedge positions to compensate for the weaker peso, said Andrew Stanners, a London-based fund manager.
“Mexico is a victim of its own success,” said Stanners. “There isn’t anything specifically within the fundamentals of Mexico that is a reason for the peso to depreciate so much.”
“This is really weird,” said Banamex economist Sergio Luna. “This is more offshore. It must be some robots working on risk aversion algorithms.”