Mexican Peso rebounds, but carry trade exodus still bites
- Peso recovers modestly but remains down roughly 3% weekly.
- Narrowing rate differential continues undermining Mexico’s carry advantage.
- Weak NFP pushes October Fed hike odds sharply lower.
The Mexican Peso recovers some ground versus the US Dollar, gaining 0.5%, but it remains poised to end the week with a 3% loss as investors exit the “carry trade” amid a narrowing of the interest rate differential between the US and Mexico to its lowest level since 2015. The USD/MXN edges down to 18.21, after peaking at 18.35.
USD/MXN eases as weak US jobs temper Fed expectations
Mexican Peso buyers find some relief, though the USD/MXN uptrend is set to continue amid the narrowing of the interest rate differential. The Bank of Mexico (Banxico) private economists' survey showed that most economists expect interest rates to remain unchanged at 6.5% until the end of 2027.
Conversely, the Federal Reserve (Fed) is seen tightening monetary policy by at least 25 basis points toward the end of the year, which would put the US-Mexico interest rate differential at 2.25%.
Manufacturing data from Mexico showed that activity expanded in September, according to S&P Global, though it warned that the economy remained “quite fragile.”
Across the northern border, US Nonfarm Payrolls in September were below estimates of 90K, coming at 29K, down from 133K. The Unemployment Rate rose from 4.1% to 4.2%, although negative, due to the increase in the participation rate.
This and dovish comments by the New York Fed President John Williams and Vice Chair Philip Jefferson triggered a reduction of Fed hawkish bets for the October 28 meeting. At the time of writing, the odds stand at 23% for a hike, while the chances for a hold are 77%, according to Prime Terminal data.
In Mexico, the economic docket will feature the release of Banxico’s last Meeting Minutes. In the US, the schedule will feature the ISM Services PMI, jobs data, the release of the Federal Open Market Committee (FOMC) Meeting Minutes from its last meeting, a speech by Fed Governor Bowman, and the University of Michigan Consumer Sentiment.
USD/MXN Price Forecast: Technical Outlook
In the daily chart, USD/MXN trades at 18.1612. The pair holds above the triple simple moving average cluster around 17.2340 and has also pushed through the prior descending resistance trendline area near 18.1200, keeping the near-term bias bullish as the spot grinds higher from August lows. The Relative Strength Index (RSI) at 77 shows overbought conditions, hinting that upside momentum is stretched but not yet decisively reversing.
On the downside, initial support emerges at the reclaimed trendline area around 18.1200, ahead of the triple Simple Moving Average (SMA) group near 17.23, while a deeper pullback would look toward horizontal support at 16.89. With no meaningful resistance levels immediately overhead in the current setup, price action is likely to be driven by momentum exhaustion signals and profit-taking rather than well-defined topside barriers.
(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.
