Mexican Peso hits 25-month high as US CPI lurks
- USD/MXN hits 25-month low as Mexico output improves.
- Softer US CPI would support the Peso through rate-differential appeal.
- Banxico hold expectations keep Mexican carry advantage intact.
The Mexican Peso (MXN) is poised to end Tuesday’s session with solid gains of 0.32% against the US Dollar (USD) as money markets await the release of the US July inflation figures, while USD/MXN trades at 17.08, a level last seen in June 2024.
USD/MXN weakens on stronger-than-expected Mexican output and hopes of a Fed pause, with traders awaiting US inflation data
Mexico’s Industrial Output for June improved from a 0.8% contraction to 0.2%, beneath forecasts of 0.3%. In the twelve months to June, output exceeded forecasts for a 1.1% increase, was 1.7%, crushing May’s -0.7% print.
The improvement in the data provided a leg down in the USD/MXN pair. Still, traders refrained from driving the exchange rate past the 17.00 milestone as they await the release of July’s US inflation data.
On Wednesday, the US economic calendar includes the release of inflation data. Expectations indicate that headline inflation will decline slightly from 3.5% to 3.4% year-over-year, while core figures are also expected to slow down from 2.6% to 2.5% over the twelve months ending in July.
If the data comes softer than expected, this would be positive for the Mexican Peso. The Federal Reserve (Fed) would not need to increase rates, and, as a result, amid the ongoing disinflation process, the interest rate differential will still favor the emerging-market currency.
The US Dollar index (DXY), which tracks the performance of the buck against six currencies, sits at 99.80 after touching a two-month low of 99.40.
Based on the Citi Mexico expectations survey, all analysts predict the Bank of Mexico's (Banxico) key policy rate will stay steady at 6.50% by the end of the year. The median forecast also suggests that the USD/MXN exchange rate will close this year at 17.90.
USD/MXN Price Forecast: Technical outlook
In the daily chart, USD/MXN trades at 17.0688, extending its slide beneath the clustered simple moving averages, with the latest triple SMA reading around 17.3972 acting as overhead resistance. The pair also remains capped by a descending trend-line resistance coming in near 17.4359, while the Relative Strength Index (14) at 29.4 slips into oversold territory, hinting that bearish momentum is stretched but still dominant as long as spot holds below these structural caps.
On the downside, immediate focus sits on the current area around 17.07 as a pivotal level, with a deeper support zone emerging near the former resistance-turned-floor around 15.65 should selling pressure accelerate. On the topside, a recovery would first need to reclaim the triple simple moving average cluster at 17.40, followed by a break above the descending trend-line hurdle near 17.44 to ease the bearish bias and open room for a more sustained corrective bounce.
(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.
