Mexican Peso holds firm as FOMC Minutes signal further rate hikes
- USD/MXN holds near 17.98 after retreating from 18.43.
- September Fed hike narrowed Mexico’s interest-rate advantage further.
- Banxico economists see rates holding at 6.50% through 2027.
The Mexican Peso finishes its winning streak yet holds firm at around Wednesday’s opening price against the US Dollar, after the minutes of the Federal Reserve’s last meeting revealed that officials expect another rate hike by the year’s end. The USD/MXN trades at 17.98, virtually unchanged.
Background of the Peso’s depreciation
The Mexican currency stopped bleeding after depreciating over 7% since September 21, and after the USD/MXN reached a high of 18.43, the exotic pair retreated over 2.3%, slightly below the 18.00 psychological figure.
The main reason the Peso weakened was that high US Treasury yields, sparked by the jump in energy prices, increased the speculation that the Federal Reserve would increase rates.
In September, the US central bank raised rates by 25 basis points, narrowing the interest-rate differential between the two countries and exacerbating the Mexican Peso sell-off as the carry trade waned.
Following the Fed’s decision, the Bank of Mexico (Banxico) held rates steady. Meanwhile, economists polled by Banxico project that Mexico’s interest rates will remain unchanged at 6.50% for the foreseeable future, until the end of 2027.
FOMC expects another rate hike, amid split views in the board
Minutes of the Federal Reserve’s last meeting revealed that some policymakers see September’s hike as a precautionary move. Others see it as the start of a tightening cycle to fight stubbornly high inflation that has been above the 2% goal for five years.
Of note was that Fed members expect another hike by the end of the year, while a couple of officials revealed that raising rates, aligned to match a higher neutral level of interest rates, than foreseen.
Money markets show an 81% chance of no Fed rate hike this month, with only 19% expecting an increase, according to Prime Terminal.
Two Fed officials crossed the wires, led by Kansas City Fed Jeffrey Schmid, who was hawkish, saying that rate hikes are needed to curb inflation. The San Francisco Fed Mary Daly doesn’t disregard tightening policy, but it would depend on data and external shocks.
On Tuesday, two Fed officials crossed the wires. Kansas City Fed Jeffrey Schmid said that additional rate increases would be needed to curb high inflation, while San Francisco Fed Mary Daly revealed that further adjustments to interest rates would be data-dependent, and the easing of external shocks.
Upcoming in Mexico’s economic calendar are September inflation figures and the release of the Bank of Mexico (Banxico's) latest meeting minutes. In the US economic docket, the release of Initial Jobless Claims will feature on October 8, followed on Friday by the University of Michigan's Consumer Confidence report.
USD/MXN Price Forecast: Technical outlook
In the daily chart, USD/MXN trades at 17.9871, keeping a bullish near‑term bias as spot holds above the clustered simple moving averages (SMA) pack, whose latest composite reading stands near 17.2682. Price trades well above this medium‑term trend floor while the Relative Strength Index (14) at 67.0 hovers just below overbought territory, suggesting strong but slightly stretched upside momentum as the pair grinds higher within the broader downwards resistance trend line drawn from the 21.0808 high.
On the downside, initial support emerges at the triple SMA area around 17.27, which protects the latest horizontal base at 16.8866. As long as USD/MXN sustains above these levels, bulls could continue probing the descending resistance trend line overhead, with a clear rejection from that structure likely to trigger a corrective pullback toward the 17.27 region before any deeper slide to the 16.89 floor.
(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.
