MEXICO CITY Mexico's peso currency reached an almost 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 the election of Donald Trump as U.S. president as higher oil prices helped lift emerging market currencies.
The peso firmed to 18.1125 pesos per dollar, its best level since Aug. 18, but then pulled back a bit to trade around 18.17 per dollar, about 0.1 percent stronger on the day.
Trump's election victory drove the currency to a record low on fears he would rip up a trade deal with Mexico.
But the peso has bounced back and it 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 North American Free Trade Agreement.
"The peso has more room to appreciate," said Marco Oviedo, an economist at Barclays in Mexico City, citing fewer clouds over the NAFTA deal, as well as less concern about Mexico's political landscape combined with bets on higher interest rates.
The peso gained ground this week after data on Thursday showed a jump in inflation to an eight-year high that backed expectations of more central bank interest rate hikes. Higher interest rates lift the appeal of the peso to foreign investors.
That added to gains seen Monday after the ruling party managed to hold onto the governorship in the populous State of Mexico, according to preliminary results.
President Enrique Pena Nieto's PRI party fended off a challenge there from new leftist party founded by populist Andres Manuel Lopez Obrador, who leads in early polls for next year's presidential race.
Analysts have warned that signs Lopez Obrador is gaining ground could weigh on the peso due to uncertainty about what he could do to free-market reforms seen under Pena Nieto, such as an opening of the energy sector to private investment.
Data on Friday showed the number of bets by speculators for a stronger peso rose to a four-year high.
Long positions recorded by the Commodity Futures Trading Commission data rose to 115,601 contracts, the highest since late May 2013, as of June 6, the latest data.
Some analysts think investors have become too confident in more 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.
(Reporting by Sheky Espejo and Michael O'Boyle; Editing by Bill Trott)