Mexica’s peso leads global currency rout

The Mexican peso extended its decline for a third consecutive day on Monday, leading a broader slump in global currencies against the US dollar. Mounting concerns over a potential US recession have triggered a wave of risk aversion in financial markets.

The Mexican currency was trading at 19.5645 pesos per US dollar, down about 2 per cent against the Reuters reference price from Friday. Peso’s drop on Monday follows loses from Sunday night in its foreign operations, when the currency surpassed the psychological barrier of 20 pesos per dollar, a level not witnessed since October 2022.

The currency’s weakness is attributed to a broader market sell-off, particularly in Asia, where investors unwound risky positions known as “carry trades.” This shift towards safe-haven assets has negatively impacted the peso.

Gabriela Siller, director of analysis at Banco Base, explained that the peso is caught in a “domino effect” as investors flee from perceived riskier assets.

The peso has lost over 5 per cent of its value in the past three trading sessions. This downward trend was initiated by data indicating a contraction in US manufacturing activity, followed by a weaker-than-expected US jobs report. These economic indicators have fueled speculation of a potential US recession.

Mexico’s economy is closely intertwined with the US, its primary trading partner. Consequently, the peso is highly sensitive to economic developments in the United States.

Attribution: Reuters