The Mexican Peso’s sharp decline at the end of last week was triggered by geopolitical risk, which seems to be the currency’s most significant driver at the moment.
Although hostilities in the Middle East have temporarily subsided, the threat of outbreaks in the future continues to present a risk to the currency.
According to the Chief Foreign Affairs Commentator for the Financial Times, Gideon Rachman, Russia, Iran, North Korea and China now constitute an “axis of adversaries” who are working together against the West. Rachman points out that the military base outside Isfahan targeted by the Israelis is, in fact, a nuclear enrichment site which utilizes Chinese-supplied reactor technology.
Yet the Middle East is not the only potential source of geopolitical risk. Reports of a fresh strain of the Omicron variant of the Covid-19 virus have also destabilized markets at the start of the new week.
“While the WHO is urging caution, it noted that symptoms linked to the new strain so far have been mild. Because it will take some time to determine the likely impact on the global economy, we believe risk aversion will continue this week,” say analysts at private investment bank Brown Brothers Harriman in a note on Monday.
A handful of countries have already introduced minor social distancing measures, but if the strain begins to spread and pose a more serious health risk, this could present a fresh risk factor for investors, leading to a steady stream of funds into safe-havens and out of riskier assets like the Mexican Peso.
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