- Current account deficit to pressure peso, Citigroup says
- Mexico peso leading losses among major currencies this year
Investors should sell Mexico’s peso and buy dollars and euros amid a widening current account deficit in Latin America’s second-largest economy, according to Citigroup Inc.
“I get thousands of calls all the time saying ‘why is the Mexican peso so weak, given that locally everything is in decent shape?’” said Dirk Willer, a strategist at Citigroup in New York. “I don’t think that’s right. I think the Mexican peso should underperform because the local story is not very good.”
While Mexico’s peso has tumbled the most among major currencies this year on bets that higher borrowing costs in the U.S. will reduce the appeal of riskier assets, Citigroup says that local economic indicators should also be putting pressure on the currency. Mexico’s current account deficit has been widening amid sluggish economic growth. In February, the central bank unveiled a series of coordinated moves to bolster the peso, prompting a drop in the nation’s cash hoard a month and a half before Moody’s Investors Service put a negative outlook on its grade for the country.
The peso dropped 0.4 percent to 18.5953 per dollar at 4:16 p.m. in New York on Friday, extending this week’s decline to 0.6 percent, the worst among major currencies after the British pound.