A sharp drop in Mexico's currency after a landslide election result has shaken foreign exchange markets as far as Hungary and Turkey this week, leaving...
LONDON - A sharp drop in Mexico 's currency after a landslide election result has shaken foreign exchange markets as far as Hungary and Turkey this week, leaving investors asking whether the unwinding of hugely popular " carry trades " will continue.
"The generalised rise in emerging market FX volatility ... has prompted de-leveraging in carry around the world," said Chris Turner, head of global markets at lender ING. "Where do we go from here?"The news that Claudia Sheinbaum was set to win by a landslide in Mexico's presidential election caused the peso to tumble, with markets spooked by possible constitutional reforms and impact on the U.S. trade relationship.
Volatility is a big threat to carry trades. A rise in the currency in which investors borrow, or a fall in the one in which they invest, can wipe out gains from yield differentials."My sense is participants have in large part liquidated these trades and moved to flat," said Neil Jones, a senior FX sales executive at TJM Europe. "The market is likely still holding core long term carry trades, but certainly far reduced from 48 hours prior.
Also of major concern is the yen's likely path. Another factor driving the Japanese currency higher this week has been speculation that the Bank of Japan could raise interest rates in July, with officials warning that they are watching moves in the yen closely. In an update posted at 9 p.m. last night NYSE said it would "bust" all the "erroneous" trades of Berkshire Hathaway stock at or below $603,718.30 a share. -- Axos Financial Inc., which has lent to properties including former President Donald Trump’s flagship New York tower, plunged after Hindenburg Research said it was short the stock because of the bank’s exposure to problematic commercial real estate loans.
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