|

Mexican Peso slides to April lows as Banxico shrugs off Fed gap

  • USD/MXN surges above 17.70 as Peso losses accelerate.
  • Banxico says policy need not mechanically track Fed adjustments.
  • Hawkish Fed rhetoric reinforces the US Dollar advantage after strong jobs data.

The Mexican Peso (MXN) extends its losses against the US Dollar (USD) on Thursday after the Bank of Mexico (Banxico) held the benchmark interest rate unchanged at 6.50%, disregarding the interest rate differential as a primary factor in setting monetary policy. The USD/MXN pair rallies more than 1%, trading at 17.75, its highest level since late April.

USD/MXN jumps as Banxico stresses independent policy path

For the third time, Banxico held interest rates unchanged, unanimously. In its monetary policy statement, the central bank said that it “will make its decisions considering the ongoing disinflation process and the expected behavior of its determinants,” which also includes the USD/MXN exchange rate.

Mexico’s central bank said that monetary policy “would not have to react mechanically to the anticipated adjustments to the Fed funds rate.” Banxico’s inflation projections indicate that headline and core inflation will converge toward its 3% goal by the fourth quarter of 2027.

Earlier, Mexican core inflation for the first half of September rose from 0.08% to 0.17% MoM, beneath forecasts of 0.2%. Headline inflation for the same period rose from 0.1% to 0.33%, exceeding forecasts of 0.26%.

Across the northern border, hawkish Fed speakers led by Cleveland Fed Beth Hammack, Philadelphia Fed Anna Paulson, and New York Fed John Williams increased the chances of a rate hike by the Fed at the October 28 meeting.

Data-wise, US jobless claims for the week ending September 19 came at 197K, below the previous week's reading of 198K and forecasts of 201K.

USD/MXN Price Forecast: Technical outlook

Chart Analysis USD/MXN
USD/MXN daily chart

In the daily chart, USD/MXN trades at 17.7243. The pair holds well above the latest reading of the 50/100/200-day simple moving averages (SMA) cluster at 17.1647, keeping the near-term bias bullish as price extends further away from its underlying trend base. However, the Relative Strength Index (14) at 79.67 shows overbought conditions, hinting that while upside momentum is strong, the rally is becoming stretched against the backdrop of the overarching downward resistance trend lines that still cap the broader structure.

On the downside, initial support is seen at the SMA cluster around 17.16, ahead of stronger horizontal demand at 16.89, where previous lows created a structural floor. On the topside, the pair would face the next significant hurdles at the descending resistance trend lines drawn from the 18.17 and 21.08 cycle highs, which together outline the medium-term bearish channel and could limit further gains unless decisively broken.

(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

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

More from Christian Borjon Valencia
Share:

Editor's Picks

AUD/USD edges lower to near 0.6850 on robust US jobs data

The AUD/USD pair trades with mild losses around 0.6860 during the early Asian session on Monday. Stronger-than-expected US employment data provide some support to the US Dollar against the Australian Dollar. Traders brace for China’s Consumer Price Index inflation report, which is due later in the day.

USD/JPY bounces off three-week low; keeps the red near 157.65 as focus remains on US NFP

USD/JPY bounces off the weekly low set during the Asian session, as bears turn cautious ahead of the US NFP report due later this Friday. The upside seems limited as the recent slump in US bond yields and hopes of Iran war de-escalation undermine the US Dollar. Moreover, a hawkish BoJ and intervention risks support the Japanese Yen, capping the pair.

Gold loses the grip; $4,000 comes next on the downside

Gold sets aside two daily advances in a row on Friday, opening the door to a potential test of the key $4,000 mark per troy ounce. The precious metal’s retracement follows a decent improvement in the sentiment surrounding the US Dollar, solid NFP data and higher US Treasury yields across the board.

Week ahead: Inflation and geopolitics in focus as US political landscape shifts
It has been a rollercoaster week, with the initial market nervousness being replaced by strong risk appetite on Wednesday, which proved very short-lived, as risk assets suffered on Thursday. The result of the US midterm elections, with the Democrats performing exceptionally well and taking control of Congress, confused investors, although it is too early to judge if current trends will persist.
Week ahead – Inflation and geopolitics in focus as US political landscape shifts

Post-midterm election euphoria fizzles out as risk aversion prevails. US CPI, PPI and Fedspeak on the radar as Fed hike bets remain supported. Oil retreat pauses on mixed hopes about the ongoing conflicts.

US Dollar breaks below 101.50 as Democrats sweep Congress
The US Dollar (USD) comes under heavy selling pressure on Wednesday, with the US Dollar Index (DXY) falling around 0.5% to trade near 101.35 after sliding below the 101.50 level. The Greenback retreats to its lowest level in four weeks as investors reassess the political and economic outlook following the Democratic Party's sweeping victory in the United States (US) midterm elections.
Mexican Peso slides to April lows as Banxico shrugs off Fed gap