• Peso is within about 3% of record low reached last month
  • Traders using peso to hedge against developing-nation risk

The Mexican peso fell the most in emerging markets as a drop in oil prices and U.S. equities damped appetite for riskier assets.

The peso reversed gains and fell 0.6 percent to 18.2747 per dollar at 2:22 p.m. in Mexico City, leaving it within 3 percent of a record low reached last month. Oil declined after rising as much as 4.1 percent while U.S. stocks slipped following an earlier gain.

“A shock reversal in both oil and U.S. equities have been quite disconcerting and I think that’s filtered through to how the peso has performed today," said Mike Moran, the head of economic research for the Americas at Standard Chartered Plc in New York. “That’s spooked some investors."

The peso is the most traded emerging-market currency in the world, and its liquidity and almost around-the-clock trading hours make it a favorite vehicle for investors who want to hedge risk across all emerging-market economies. Mexico’s currency has fallen 5.8 percent this year, the most among its most-traded peers, as slowing global growth and a selloff in commodities spur bearish sentiment on assets from developing nations.

Mexico on Thursday kept its key interest rate at 3.25 percent as slow inflation and weak growth outweighed concern about a decline in the peso. Still, in a statement accompanying the decision, policy makers said the weaker peso and the potential for an impact on consumer prices are at the front of its inflation concerns, and the central bank will pay special attention to the currency in coming weeks and months.

"The board will follow very closely the evolution of all determinants of inflation and its mid- and long-term expectations, especially the exchange rate and its possible pass-through to consumer prices," the central bank’s policy board said in the statement.

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