Funds and asset managers are significantly increasing their optimistic stakes on the Mexican peso, hitting the highest enthusiasm seen in over a year.
The currency’s strong performance persists, even amidst concerns of being overvalued.
According to the Commodity Futures Trading Commission (CFTC), leveraged fund contracts have surged to 45,186.
At the same time, institutional asset managers have elevated their bets to 173,897 contracts, amounting to $5.2 billion in bullish peso trades.
These figures mark the most considerable engagement since March and December of 2022, respectively.
This investment uptick occurred alongside the Bank of Japan’s decision to exit its negative interest rate policy, propelling the peso’s value beyond MXN$17.00 against the dollar.
A favorable environment for carry trades has reinforced the Mexican peso’s allure, with the Japanese yen serving as a popular funding currency for nearly a decade.
In 2023, the peso notched its most significant quarterly gain in twenty-five years, distinguishing itself as the year’s highest-performing global currency.
Its attractiveness is bolstered by the prevailing high interest rates worldwide and notable market stability.
The peso’s risk-reward ratio is now nearly double that of several other currencies, a compelling indicator of its strong market position.
Despite Mexico initiating an easing cycle, with Banxico hinting at maintaining its key rate in the near future, investor confidence remains unshaken.
The market anticipates a relatively modest rate cut of 55 basis points over the next half-year.
This forecasted mild easing contrasts sharply with more aggressive cycles anticipated for other currencies, further elevating the peso’s favorable outlook.