In the old world that ended some time last month, the peso was a king. It was among the strongest currencies in the world and appreciated against the U.S. dollar for the past three years. It appreciated nearly 10% against the greenback, which itself was rising against most currencies.
First, consider its pre-existing condition. The economy contracted every quarter last year. The central bank kept the overnight interest rate target among the highest real and nominal levels in the world. This, in turn, attracted carry-trade strategies by levered accounts, and asset managers liked the yields and potential for capital gain in the bond market. Speculators in the futures market had a record large gross and net long peso position. Executives may have felt relief over the new NAFTA…
