Mexican Peso pain deepens above 18.00 as carry appeal fades
- USD/MXN holds above 18.00 as the Mexico-US rate gap narrows.
- Peso drops 6.25% in September as carry trade unwinds.
- Soft PCE shifts October Fed odds toward hold, limiting Dollar upside.
The Mexican Peso (MXN) prolongs its agony, extending losses by over 0.11% against the Greenback for the third straight day on Wednesday, while USD/MXN continues to trade above the psychological level of 18.00 as the carry trade loses its appeal.
USD/MXN stays elevated as shrinking rate advantage drives Peso unwinding
The narrowing of the interest rate differential between Mexico and the US is the main reason the exotic pair continues to rise to levels last seen in late March.
During September, the Federal Reserve (Fed) raised rates to 3.75%-4% and hinted at additional rate hikes if inflation data remains above the Fed’s 2% goal. Conversely, the Bank of Mexico (Banxico) held rates for the third consecutive meeting, after finalizing its easing cycle at 6.50%.
Therefore, the 2.50% interest-rate spread between the two countries triggered the Peso’s sell-off, which has so far depreciated almost 1% this year and in September alone is down 6.25%.
US data showed that the Fed’s preferred inflation measure, the Core PCE Price Index, stayed at 3% in August, below the 3.3% forecast. The headline was 3.4%, unchanged from July and below the predicted 3.7%.
Earlier, ADP's data showed private companies added 90K jobs, surpassing the 70K estimate and confirming Fed Chair Kevin Warsh's comment that the labor market aligns with full employment.
The data triggered a reaction in money markets, with traders now expecting the Fed to hold rates at the October meeting, with odds near 66%, according to Prime Terminal.
At the same time, the US economy grew 2.2% in Q2 2026, surpassing forecasts of 1.5% and reaffirming resilience. Meanwhile, the trade deficit widened in August, according to the US Commerce Department.
Ahead, Mexico’s economic docket is light, with traders eyeing Business Confidence and the S&P Global Manufacturing PMI, both September data releases, on Thursday. In the US, traders eye Fed speaking, jobless claims ahead of the release of September’s Nonfarm Payrolls data on Friday.
USD/MXN Price Forecast: Technical Outlook
In the daily chart, USD/MXN trades at 18.0675, extending its advance above the clustered longer-term simple moving averages (SMA) around 17.20 and the reclaimed downward trend lines that previously capped rallies, which now act as underlying demand. The near-term bias is bullish, though the Relative Strength Index (14) at 83.1 signals stretched, overbought conditions that could slow the upside and hint at a pause or corrective phase after the latest surge.
On the downside, initial support is seen at the former resistance trend line near 17.20, closely aligned with the triple SMA group, followed by the horizontal floor at 16.89 and a deeper structural level near 15.10 if a stronger pullback unfolds. With no immediate overhead technical resistance defined in the current dataset, any consolidation or dip toward the 17.20 area would likely be watched as a potential base for the bulls unless the RSI-driven correction extends and forces a break back into the previous range.
(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.
