Carry Trade Unwind Makes Mexican Peso the World's Worst-Performing Currency
nashnova research
The Mexican peso fell nearly 6% in September alone, the worst performer among all major currencies tracked by Bloomberg; a concentrated carry-trade unwind is the core driver as the US–Mexico rate spread narrows to its lowest since 2008.
How did the "super peso" collapse so fast?
The peso lost nearly 6% in September, tumbling from its former "super peso" highs to become the worst-performing major currency tracked by Bloomberg.
This means → capital that had piled into the peso for its high yields is now rushing for the exits, far faster than a typical EM currency pullback.
Banco Base chief economist Gabriela Siller put it bluntly: "The carry-trade party is over."
Why did the carry trade break down?
The carry trade — borrowing in a low-rate currency to buy a high-rate one and pocket the spread — depended on the wide US–Mexico interest-rate gap.
The Fed kept hiking while Banxico held rates unchanged on September 24. The spread has narrowed to its lowest since 2008, half of what it was a year ago.
In plain terms = the peso's "high-yield edge" got squeezed from both sides: US rates rose, Mexico stopped following, and the gap shrank until the trade no longer paid.
What are the banks forecasting now?
Société Générale cut its year-end call from 17.25 to 18 pesos per dollar, in line with the current level; strategist Brendan McKenna called the peso "a fragile currency even before the sell-off."
Morgan Stanley lowered its Q4 forecast to 18.25 pesos/dollar, 6% weaker than before; Deutsche Bank moved from 17.5 to 18.20, saying the peso's "carry story is losing its appeal."
Mexico's own Banco Base also cut its forecast from 17.80 to 18.20 for the same period.
This means → from global banks to domestic lenders, the direction is unanimous — no one is betting on a near-term peso rebound.
What other headwinds does the peso face?
US Treasury yields have climbed to multi-decade highs, triggering a broad sell-off in risk assets; the peso, one of the most liquid EM currencies, is a natural first casualty.
XS.com senior analyst Antonio Di Giacomo noted: "As long as US yields stay elevated and markets expect a more hawkish Fed, the peso will struggle to sustain any recovery."
This reflects a double bind — the peso's problem is not just a narrowing spread but also a global tide of capital flowing back into the dollar, both forces hitting at once.
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