(Bloomberg) -- Leveraged funds trimmed bets on the Mexican peso in a week that saw the currency briefly collapse amid rising geopolitical tensions.

Hedge funds cut their net long position on the Mexican peso by 4,020 contracts to 53,469 contracts, the biggest reduction since late February, according to data from the Commodity Futures Trading Commission for the week through April 23. 

The peso tumbled more than 5% against the dollar on April 19 — which the market deemed a flash crash — after headlines on an Israel retaliatory strike on Iran spooked traders. 

The peso then trimmed its loss. But asset managers, including pension administrator, mutual funds and insurance companies, cut their bullish bets on the currency. 

The Mexican peso has outperformed developing-nation and regional peers over the past few years, thanks to a combination of high real rates, relatively stable politics, record remittances from workers in the US and the so-called nearshoring trend.

But renewed angst over the outlook for US rates coupled with what Bank of America described as “literally the highest ever” positioning for the Mexican currency has some traders getting more cautious.

The Mexican peso “may weaken a bit against the dollar on higher US interest rates,” said Thierry Wizman, director of global currencies and an interest-rate strategist at Macquarie Futures. 

Despite that potential weakness, it’s still in a better position than regional peers like the Colombian peso or Brazilian real, Wizman said. “With the central bank staying very hawkish, and with remittances staying strong, it shouldn’t weaken much.” 

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