Mexican Peso nears 18.75 as Iran risks and AI selloff hit sentiment
- USD/MXN climbs to 18.70 as safe-haven demand supports Dollar.
- Mexico's mid-month inflation accelerates to 3.62%, exceeding market expectations.
- Fed tightening prospects and Banxico's extended pause threaten Peso carry trades.
The Mexican Peso depreciated for the second straight day, down 0.16%, as the US Dollar held firm amid growing tensions in the Middle East and investor fears that mega tech companies are issuing more debt to finance the AI buildout. The USD/MXN trades at 18.72, up 0.20%.
The US Dollar boosted by the Middle East escalations
Sentiment soured as the US-Iran conflict escalates, with Washington and Jerusalem preparing plans to resume attacks on Iran after the US elections. Saudi Arabia and the Houthis exchanged attacks, igniting a jump in energy prices and, in consequence, driving the greenback higher.
Mexico VS US interest rate differential favours upside in USD/MXN
The USD/MXN resumed its uptrend as the Federal Reserve is expected to raise rates 25 bps towards the end of 2026. Conversely, the Bank of Mexico (Banxico) is foreseen to keep rates unchanged in 2026 and throughout 2027.
Mexico’s inflation rose above estimates in the first half of October, up from 3.42% to 3.62% in the period, exceeding forecasts of 3.60%, according to the national statistics agency, INEGI. Core inflation, which strips out volatile items like food and energy, dipped over the same period from 3.79% to 3.78%, missing forecasts of 3.70%.
US Initial Jobless Claims for the week ending October 17 came in better than expected at 194K, below both estimates and the previous reading of 200K, and fell to a near 57-year low. The four-week average also dipped to 197.75K, pointing to a low-hire, low-fire economy.
In the previous week, US inflation data on the consumer and producer side was higher than expected. This cemented the case that the Federal Reserve will at least increase interest rates once towards the end of the year.
Investors await Mexico’s October Retail Sales and Mid-Month Inflation data. In the US, the docket features jobless claims for the week ending October 17, S&P Global Flash PMIs, and the University of Michigan’s final October Consumer Sentiment reading.
USD/MXN Price Forecast: Technical outlook
In the daily chart, USD/MXN trades at 18.7197, keeping a clear bullish bias as it holds well above the clustered 50-, 100- and 200-day simple moving averages (SMAs) around 17.54. The break higher extends the advance from the mid-16.00s while the Relative Strength Index (14) at 73.87 shows overbought conditions, suggesting upside momentum remains strong but stretched.
On the topside, the next notable resistance is the longer-term downward trend line projected from 21.0808, which caps the broader structure and could slow further gains. On the downside, initial support is seen at the 50/100/200-day SMA area near 17.54, ahead of the horizontal support level around 16.89, where buyers would be expected to re-emerge if a deeper correction unfolds.
(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.
