Traders Unwind Short Mexican Peso Trades as Gold, Stocks Fall

  • Mexico’s peso is a popular short to hedge bets on other assets
  • Peso is second-worst performing major currency in the world

Investors who were shorting the Mexican peso to offset their long asset positions are now unwinding their trades, according to investor Mark Dow, as hawkish comments from Federal Reserve officials pushed assets from gold to stocks down.

The Mexican peso outperformed all emerging-market currencies Wednesday, gaining 0.2 percent to a three-week high of 19.2529 per dollar at 12:27 p.m. in New York as all other major currencies fell. The S&P 500 Index slumped and gold prices slipped below $1,300 for the first time in more than three months. The Bloomberg Dollar Spot Index climbed the most in two weeks as traders increased bets on higher borrowing costs.

Investors often use the peso, one of the most liquid emerging-market currencies, to offset risks they take elsewhere. As global assets fell today, investors unwound their short peso trades, causing the currency to rise, said Dow, founder of Dow Global Advisors.

Investors “are losing money on their long positions and they see their hedge is not working, he said from New York. “They realize the hedge is not working the way it has in the past because it is probably too crowded, so they close it, making the peso appreciate."

Dow said he bought Mexican pesos before the presidential debate between candidates Hillary Clinton and Donald Trump last week and is holding on to them. “Today’s price action is telling us that people were heavily positioned long gold, gold miners, and silver and short the Mexican peso," he added.

The Mexican currency is the second-worst performing major currency this year after the British pound.

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