Mexican Peso rallies to two-year high as soft CPI hits Fed bets
- USD/MXN nears 17.00 as softer US CPI supports the Peso.
- Fed hold expectations rise after inflation extends downward trend.
- Banxico steady-rate outlook keeps carry advantage supporting Mexican Peso.
The Mexican Peso (MXN) appreciates on Wednesday against the US Dollar (USD) to levels last seen in May 2024 following a decline in US inflation, as markets expected, softer-than-expected, which trims bets of a rate hike by the Federal Reserve (Fed) in its next meeting. The USD/MXN pair trades at 17.05 after hitting early lows of 17.01.
USD/MXN falls on cooler US inflation, traders trimming Fed hawkish bets
Data from the US showed that July CPI matched estimates, indicating that the disinflation process continues. The headline Consumer Price Index (CPI) dipped from 3.5% to 3.4% YoY, while core CPI eased from 2.6% to 2.5% in the twelve months to July.
The data was benign, following Oil’s 23% July jump. Although West Texas Intermediate (WTI) is up 9% so far this week, it remains below June’s levels.
However, Fed dovish members are not out of the woods yet. Recent news reports pointed out that Iran denied talks to extend the ceasefire with the US for another 60-days, contrary to Pakistani sources. At the same time, US President Donald Trump said that the US controls the Strait of Hormuz.
In the meantime, Boston Fed Susan Collins said that if inflation remains high, she would vote to raise rates, according to the Financial Times.
The US Dollar index (DXY), measuring the Dollar's performance against six currencies, is at 99.98, up a modest 0.17%.
According to the Citi Mexico expectations survey, all analysts expect Banxico’s key policy rate to remain at 6.50% through the end of the year. The median forecast also indicates 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 17.0557, extending its decline beneath the clustered simple moving averages (SMA) pack, with the 50/100/200-day SMA group now aligned near 17.3918 as overhead resistance. The pair’s location well below this long-term average cluster suggests a bearish near-term bias, while the Relative Strength Index (RSI) at 28.78 has slipped into oversold territory, hinting that downside momentum is stretched even as the broader downtrend remains intact.
On the topside, initial resistance is defined by the triple SMA cluster around 17.39, where any corrective bounce would likely meet supply and reinforce the broader downward structure. On the downside, with no nearby technical floors from the current dataset, traders may look to price action behavior and the oversold RSI reading to gauge the risk of a short-term consolidation or corrective rebound before the prevailing bearish trend resumes.
(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.
