• Barclays sees U.K. leaving hastening currency’s depreciation
  • Exit from EU would be felt across emerging markets, Barclays

It might be about to get a whole lot worse for Mexico’s peso, the world’s worst performing major currency this year, and as usual the threat has little to do with the fundamentals of Latin America’s second-biggest economy.

Mexico’s currency, the emerging-market tender of choice for traders looking to express views on global risks, will tumble 8.6 percent by March to a historic low of 20 per dollar if the U.K. votes this month to leave the European Union, according to Barclays Plc. While a so-called Brexit would impact Eastern Europe currencies first, the peso’s sensitivity to global events means it will also come in for punishment, according to Andres Jaime, a New York-based foreign exchange and rates strategist for Barclays.

The peso has missed out on this year’s emerging-market rally as concern the Federal Reserve would raise interest rates has at times damped demand, while at other points speculation that Mexican exports could drop amid slower global growth has weighed on the tender. The peso has weakened 5.9 percent this year to 18.28 per dollar. It’ll fall to 19 by March even if the U.K. stays in the EU as a weaker Chinese currency makes the Asian nation’s exports more competitive relative to Mexico’s, according to Barclays, which reduced its peso forecasts as part of a quarterly revision earlier this week.

“In the case of a U.K. exit, you have an additional impact,” Jaime said in an interview. “The peso tends to be one of the most sensitive in emerging markets.”

In 2011, the peso plunged more than 11 percent in Latin America’s biggest drop amid concerns over Greece’s financial future, a problem that was also an ocean away. While options traders’ expectations for swings in the Mexican peso have declined from a more-than-three year high in February, they’re again on the rise.

An online poll by YouGov Plc published in Tuesday’s Times newspaper ahead of the Brexit referendum on June 23 showed ‘Remain’ at 43 percent and ‘Leave’ at 42 percent.

Barclays now sees the peso weakening to 18.75 per dollar by the end of the year and hitting 19 by March if the U.K. remains in the EU, compared to an 18.5 per dollar call for each date previously, according to Jaime. A Brexit would push the tender to 19.7 per dollar by December, on its way to 20, Barclays projects.

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