(Bloomberg) -- Leveraged funds have been the main force behind the recent Mexican peso rally, propelling it to again become the best performing currency in the world this year.

The group, which is composed mostly of hedge funds, increased its net long peso positions by 3,780 contracts between May 7 and May 14, according to the latest available derivatives data from the Commodity Futures Trading Commission. It was the first bullish week for the group in more than a month, which helped the peso to strengthen toward its year-to-date high at 16.2616 per dollar.

Institutional assets managers, which hold the biggest bullish position in the peso with 146,975 contracts, also added to positive momentum with 2,558 long peso contracts in the same week. 

Read More: Multinationals Are Seeking Protection Against the ‘Super Peso’

A recent decline in global volatility, with tensions in Middle East not escalating and increased bets that the Federal Reserve will begin its easing cycle this year, helped push the peso’s volatility back below 10%, improving its risk-reward ratio. The peso is the best major emerging-market currency for carry trades — where traders borrow in lower-yielding currencies to buy those that offer higher yields — and also the best performer this year among 31 majors tracked by Bloomberg. 

Now focus will shift to local activity data, which includes first quarter GDP and bi-weekly inflation numbers due this week. Both are key to support the view that Mexico policymakers will be cautious on further monetary easing — traders see only 45 basis points in interest-rate cuts over the next six months, very similar to the pricing for upcoming Fed decisions. FOMC minutes Wednesday will also be scrutinized as traders need input to calibrate  bets on the path of US monetary policy. 

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