Argentina's embattled peso currency opened sharply weaker on Thursday to hit a new record low against the U.S. dollar, cranking up the challenge facing President Mauricio Macri's administration as it looks to tame unruly local markets.

The peso was down around 5 percent as of midday local time after tripping 3.52 percent lower on Wednesday as uncertainty over a biting recession and high inflation fed investor nervousness about elections in October.

Argentine debt was also pummeled, with bond yields rising sharply, while an index of the Latin American nation's risk has leapt to its highest level in five years, far outstripping other similar emerging markets.

Macri's re-election bid is looking increasingly fraught as he struggles to tame annual inflation running above 50 percent and placate a electorate hard-hit by the economic malaise, a volatile peso and rising poverty.

This has spooked markets even beyond Argentina, concerned about political uncertainty and the possibility of debt restructuring under a new leadership.

"When a high-profile country like Argentina comes under pressure, everybody loves to sell," said Edwin Gutierrez, Aberdeen Standard Investment's head of emerging market debt.

"It never tends to last very long but that is the nature of the beast, the correlation causes the knee-jerk reaction."

Macri is facing a rising challenge in the polls from arch rival ex-President Cristina Fernandez de Kirchner, seen as a riskier prospect by investors because of her past populist policies. Some polls show her now beating Macri in a run-off.

The president - who struck a $56.3 billion financing deal with the International Monetary Fund last year - has also been forced toward more populist policies, including a freeze on prices for some food staples and services.

Argentina's benchmark interest rate, set by daily auctions of short-term "Leliq" notes, rose back above 70 percent on Thursday. The central bank has been forced to hike rates to world-high levels to help stem a slide in the peso.