(Bloomberg) -- The yen pushed higher Monday, while the Mexican peso's slump extended as traders continued to unwind emerging market carry trades.
The peso fell as much as 2% against the dollar in Asian trading, extending its loss into a third straight day. The slump came as the yen surged as much as 0.8% while China's yuan strengthened, two currencies used to fund carry trades.
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The sudden appreciation in funding currencies has damaged the popular carry strategy, which typically involve traders borrowing at lower rates in developed markets to invest in higher-yielding assets in the emerging world.
What's a Carry Trade? When Does It Not Make Money?: QuickTake
“Over recent months this strategy has hit a brick wall both on the asset side (e.g. Mexican election results in June undermined the peso) and since last month, on the yen-funding side, too,” wrote ING strategists including Chris Turner in a note Friday. Higher volatility has also “forced the downsizing of positions.”
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