Traders have found yet another use for shorting the Mexican peso — as a hedge for the risk of a Brexit.
With the ballot on the U.K.’s membership in the European Union just a day away, the peso is the most in sync with the pound in almost a year. It tumbled when sterling fell in May as odds showed a higher chance Britons would vote to leave, before rallying alongside it for two of the past four days as polls showed the “Remain” campaign gaining steam.
The rising correlation means traders can short the peso to hedge against the global fallout from Brexit that everyone from Federal Reserve Chair Janet Yellen to the International Monetary Fund’s Christine Lagarde predict would be the consequence of a U.K. “Leave” vote Thursday. With $135 billion in daily trading, the peso is a proxy for risk, with investors using it to guard against events such as a Donald Trump presidency and a hard landing for China’s economy. Net shorts climbed for six consecutive weeks through June 14, the most recent Commodity Futures and Trading Commission data show.