Why Traders Love to Short the Mexican Peso
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The Mexican peso’s virtue as the most-traded currency in emerging markets is also its biggest curse.
The peso’s $135 billion in daily trading makes the market so much deeper than for other developing countries that investors use the currency as a general proxy for risk. Bought a Brazilian corporate bond? Sell pesos to hedge any losses. Stuck with a load of Treasuries? Buy pesos to blunt the pain if a risk-on environment sparks a rout. Correlations are high enough that the hedges often work, according to JPMorgan Chase & Co.