The Mexican Peso has ended its recent streak of gains but remains stable around the opening rate from Wednesday against the US Dollar. This comes after the Federal Reserve’s recent meeting minutes indicated that officials anticipate another interest rate increase before the year concludes. Currently, the USD/MXN stands at 17.98, showing little change.
Reasons for the Peso’s Decline
The Mexican currency’s decline halted after a drop of over 7% since September 21. After the USD/MXN peaked at 18.43, it has since retracted by more than 2.3%, settling just below the crucial 18.00 mark.
The primary factor behind the Peso’s depreciation was the surge in US Treasury yields, driven by rising energy prices, which fueled speculation around a potential interest rate hike by the Federal Reserve.
In September, the US central bank raised rates by 25 basis points, bringing the interest rate gap between the two nations closer and contributing to the sell-off of the Mexican Peso as the appeal of carry trades diminished.
Following the Fed’s decision, the Bank of Mexico (Banxico) opted to maintain steady rates. Based on surveys, economists expect Mexico’s interest rates to stay at 6.50% for the foreseeable future, at least until the end of 2027.
FOMC’s Outlook on Interest Rates Amid Board Divergences
The minutes from the Federal Reserve’s last meeting showed that some policymakers believe September’s rate increase was a precautionary measure, while others view it as the beginning of a series of hikes needed to tackle persistently high inflation, which has exceeded the 2% target for five years.
Interestingly, Fed members anticipate an additional rate hike by year’s end, with some indicating a need for alignment with a higher neutral interest rate level than previously expected.
Money markets are currently pricing in an 81% likelihood that the Fed will not raise rates this month, with just a 19% chance of an increase, according to Prime Terminal.
Two Fed officials made notable comments recently; Kansas City Fed’s Jeffrey Schmid was assertive in saying rate hikes are necessary to manage inflation. Meanwhile, San Francisco Fed’s Mary Daly emphasized that any further tightening would depend on data and external factors.
Upcoming events in Mexico’s economic calendar include the release of September’s inflation figures and the latest minutes from Banxico’s meetings. On the US side, the Initial Jobless Claims report will come out on October 8, followed by the University of Michigan’s Consumer Confidence report on Friday.
USD/MXN Price Projection: Technical Analysis
On the daily chart, the USD/MXN is currently at 17.9871, indicating a bullish near-term outlook as it remains above the cluster of simple moving averages (SMA), with the most recent reading around 17.2682. The price is comfortably above this medium-term trend support, and the Relative Strength Index (14) at 67.0 hovers just shy of overbought levels, indicating strong but somewhat stretched upward momentum as the pair continues to rise within a broader downtrend resistance line drawn from the prior high of 21.0808.
To the downside, initial support can be found around the triple SMA zone near 17.27, which safeguards the last horizontal support at 16.8866. As long as USD/MXN stays above these points, bullish sentiment might lead to tests of the descending resistance trend line above, though a notable rejection from this line could prompt a corrective pullback toward the 17.27 region before potentially deeper declines towards the 16.89 support.
(The technical analysis within this report was generated with assistance from an AI tool.)
Mexican Peso FAQs
The Mexican Peso (MXN) is the most actively exchanged currency in Latin America. Its value is largely influenced by Mexico’s economic performance, central bank policy, the level of foreign investment, and remittances from Mexicans living abroad, especially in the US. Additionally, geopolitical developments, like nearshoring — where companies relocate production closer to home — are seen as significant factors affecting the currency, as Mexico is recognized as a vital manufacturing hub in the Americas. Oil prices also play a critical role since Mexico is a key oil exporter.
Banxico, Mexico’s central bank, aims to maintain stable and low inflation (at or near 3%, the midpoint of a 2%-4% target range). To achieve this, it adjusts interest rates accordingly. When inflation spikes, Banxico typically raises rates to make borrowing more expensive, thereby cooling demand and slowing the economy. Higher interest rates usually benefit the Peso (MXN) by attracting investors due to increased yields, while lower rates could weaken it.
Macroeconomic indicators are crucial for assessing the economy’s state and can significantly impact the Mexican Peso (MXN). A robust economy characterized by strong growth, low unemployment, and high consumer confidence is generally favorable for the Peso. Such conditions attract foreign investment and can lead Banxico to raise interest rates, especially if inflation is also high. Conversely, weak economic data tends to result in Peso depreciation.
As an emerging-market currency, the Mexican Peso (MXN) often performs well during periods of risk appetite when investors feel confident and are willing to take on higher-risk investments. However, during times of market volatility or economic uncertainty, the Peso typically weakens as investors tend to sell riskier assets in favor of safer investments.
