(Bloomberg) -- Institutional asset managers slashed their long positions on the Mexican peso as investors unwound carry trade bets on what was until a week ago the best performing currency in emerging markets this year. More may be to come.

The asset managers, composed mostly of pension funds with mid- to long-term views, reduced their long positions by 20,012 contracts to 152,316 in the week through April 16, the biggest weekly move since December 2022, according to data from the Commodity Futures Trading Commission/CME. The reduction accounts for almost 12% of the total bullish positions held by those investors, which were the biggest since the last quarter of 2022.

Leveraged funds were more timid in their downsizing, cutting only 222 contracts from a total position of 57,711, and are still holding nearly the biggest bullish bet since March 2023.

An increase in global currency volatility — tied to uncertainty over US monetary policy and increased tensions in the Middle East — is the main factor behind the sudden change in positions. The Mexican peso’s one-month implied volatility rose to 13% from 7.4% in the first three weeks of April, weighing on the risk-reward ratio of holding long peso positions.

It could be the end of the so-called super peso, said Marco Oviedo, a senior strategist at XP Investimentos in Sao Paulo.

“There are some risk-off events coming with the election in Mexico and the election in the US, as well as geopolitics and the fact that the Fed won’t cut a lot this year,” Oviedo said.

The Mexican peso is currently the worst performing major currency in the world this month with a 3.5% depreciation. Currency is testing its 200-day moving average and a confirmed breach could bring in more bears, including systematic trend-following funds that could push the currency to fresh year-to-date lows. 

--With assistance from Maria Elena Vizcaino.

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