Mexico’s peso has been on a clear uptrend against the U.S. dollar, but that may not necessarily be a great thing for the iShares MSCI Mexico (NYSEArca: EWW) ETF.
Pressure on Mexican policymakers is rising along with the peso, but they’re hesitant to intervene and induce measures to cool the currency off. Something’s got to give, though, because if the peso keeps getting stronger, it will pressure exports.
The peso’s value began climbing last year and Rydex CurrencyShares Mexican Peso Trust (NYSEArca: FXM) has increased more than 10% year-over-year. Now the trend is gathering speed, with the peso having risen more than 2% so far this year alone.
Elisabeth Malkin for The New York Times reports that what has made the peso so appealing is a rush to higher-yielding emerging market currencies, now that yields in the currencies of most developed economies have dropped off.
If Mexico’s authorities don’t intervene, then FXM might continue to handily outshine EWW.
Read the disclaimer; Tom Lydon is a board member of Rydex|SGI.
Tisha Guerrero contributed to this article.