Mexican peso hits 10 month high as Trump fears ease

Mexico's peso currency touched a near 10-month high on Friday and data on derivatives market bets showed investors have taken the most optimistic view on the currency in four years. The Mexican currency clawed its way back to levels last seen before Donald Trump was elected US president as higher oil prices helped lift emerging market currencies.
The peso strengthened to 18.1125 per dollar, its firmest level since August 18, before retreating slightly. Trump's election victory drove the currency to a record low on fears he would rip up the North American Free Trade Agreement. But the peso rebounded and has been the best-performing major currency this year, up more than 14 percent against the dollar, as the Trump administration moved toward talks to renegotiate the NAFTA.
Data on Friday showed the number of bets by speculators for a stronger peso rose to a four-year high. Long positions as of June 6 recorded by the Commodity Futures Trading Commission rose to 115,601 contracts - the highest since late May 2013. Some analysts think investors have become overconfident in further peso gains. Analysts at Citi this week warned they would not make big bets on further gains in the peso at these levels after analyzing other rallies in emerging market currencies seen since 2004. In Brazil, yields paid on Brazilian interest rate futures contracts
dipped after annual inflation slowed to a 10-year low, spurring bets that the central bank would likely cut rates sharply next month. Rate futures' yields reflected the perception of a nearly 90 percent probability that Brazil's central bank would lower the benchmark Selic rate by 75 basis points to 9.5 percent at its July monetary policy meeting.
Investors unwound bets on a 50-basis-point reduction, an outlook that gained traction after the central bank said last month it could reduce the pace of cuts due to growing political uncertainty. The bank cut rates by 100 basis points in May. In foreign exchange and stock markets, Brazilian traders were monitoring the deliberations of the country's top electoral court in a case that could unseat President Michel Temer if judges rule he used illegal campaign funding in 2014.