Mexican Peso gains as risk appetite improves, weighs on USD
- Mexico headline CPI falls to the lowest level since December 2020.
- Core inflation remains above target, keeping Banxico cautious.
- Fed minutes and Williams' comments keep US tightening risks alive.
The Mexican Peso (MXN) registers solid gains of over 0.22% against the US Dollar (USD) on Thursday as risk appetite improves after two days of hostilities between the US and Iran ended, despite US President Donald Trump's warning that the deal might be “over.” The USD/MXN pair trades at 17.54 after reaching a daily high of 17.57.
USD/MXN slips due to US Dollar weakness
The emerging market currency is underpinned by broad US Dollar weakness. Data in Mexico showed that the Consumer Price Index (CPI) in June fell to its lowest level since December 2020, tumbling for the third straight month, down from 3.94% to 3.37% YoY, below estimates of 3.52%. Core inflation on an annual basis has risen to 4.03% YoY, slightly above Banxico’s 3% plus or minus 1% goal.
The data eases pressure on the Bank of Mexico (Banxico), which last month decided to hold rates unchanged at 6.50%, while signaling that the main reference rate would remain unchanged through the end of 2026.
Additionally, Banxico’s meeting minutes showed that negotiations between the US and Iran helped cool inflationary pressures.
According to a Citi Expectations Survey, most economists expect Banxico’s main reference rate to remain at 6.50% for the rest of the year and in 2027.
The recent FOMC meeting minutes in the US indicated that most officials supported additional Federal Reserve tightening, while those advocating a rate increase preferred to pause and gather more data. Prime Terminal data shows that money markets currently assign an 87% probability of a rate hike in 2026.
Earlier, New York Fed President John Williams expressed concern that inflation remains “far too high" and emphasized the importance of monetary policy in addressing energy prices' impact on inflation. Williams reaffirmed the Fed’s goal of returning inflation to 2% and noted that policy decisions "must remain" data-dependent.
Traders are now looking ahead to next week’s economic releases, particularly the Consumer Price Index (CPI), Producer Price Index (PPI), jobless claims, and housing market data.
USD/MXN Price Foreast: Technical outlook
In the daily chart, USD/MXN trades at 17.54, maintaining a mildly bullish near-term bias as it holds above the triple simple moving average cluster around 17.37. Price is currently testing a descending resistance trend line drawn from 18.17, while the Relative Strength Index (14) around 56 stays in positive territory, hinting at constructive momentum but not yet a decisive breakout above the broader downtrend structure.
On the downside, initial support is provided by the grouped 50-, 100- and 200-day simple moving averages near 17.37, where a daily close below would soften the bullish tone and open the way for a deeper pullback. On the topside, immediate resistance comes from the tested downward trend line around the current price zone, ahead of a stronger barrier at the higher descending resistance line close to 18.12, where a sustained push above that area would reinforce the recovery and expose the 18.00–18.10 region.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
