Mexican Peso's Selloff Leaves Forecasters Struggling to Keep Up

  • Currency is the worst performer in Latin America this year
  • World's most-traded emerging-market currency is proxy for risk

The Mexican peso led losses among major currencies as it tumbled to a record low, blowing through even the worst forecasts from analysts as investors sour on the prospects for developing nations.

The most-traded emerging-market currency in the world fell as much as 2.1 percent to a record 18.6762 per dollar and was 2 percent lower as of 11:32 a.m. in Mexico City. The country’s central bank held two auctions of $200 million each to support the peso. The selloff came as oil tumbled, U.S. equities dropped toward the lowest in 21 months and 10-year Treasury yields fell below 2 percent as investors sought out the safest assets.

After outperforming its peers last year, the peso has been the worst performer in Latin America this year as investors sold the currency as a proxy for emerging-market risk amid forecasts for a global slowdown and a slump in China, the world’s second-largest economy. None of the more than 30 strategists surveyed by Bloomberg had forecast that the currency would fall below 18.5 per dollar before the end of the third quarter.

“The peso is caught in the backwash of very negative risk appetite," said Alan Ruskin, Deutsche Bank’s global co-head of foreign-exchange research in New York. “The international backdrop is deteriorating much more rapidly than most people expected."

The peso has now lost 7.8 percent this year. Citigroup Inc. has the most bearish forecast for the peso in the first quarter, predicting it will trade at 18.1 per dollar at the end of March, according to data compiled by Bloomberg. That compares to a median forecast of 17.25 per dollar. Royal Bank of Scotland has the peso at 18.5 per dollar at the end of the third quarter and 18.8 by the end of the year.

Win Thin, the head of emerging-market strategy at New York-based Brown Brothers Harriman & Co., wrote in a note Wednesday that the peso would cross the 18.50 per dollar level “in the coming days." Just hours later, it was at 18.65.

“I am very surprised," he said in an e-mail. “These moves are too sharp, and (I hope) can’t be sustained."

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