Mexican Peso strikes back as hot US PPI fails to lift Dollar
- USD/MXN drops 0.44% to 18.41 as Peso buyers return.
- US producer inflation surges to 6.3%, exceeding market expectations.
- October Fed hike odds fall to 26%, despite persistent inflation pressures.
The Mexican Peso recovers on Thursday as investors digest the latest US inflation data, which suggests that further tightening is needed but weighs on the US Dollar. The USD/MXN trades at 18.41, down 0.44%.
US inflation rises, consumers remain resilient, but the US Dollar falls
US inflation data came hotter than expected on Thursday. The Producer Price Index (PPI) for September expanded 6.3% YoY, exceeding forecasts of 5.3%, and the core PPI followed suit as well, rising from 4.8% to 5% YoY above projections.
Money markets trimmed their Fed-hike bets for the October meeting, although both inflation readings – consumer and producer – jumped above estimates, indicating that inflation prices in the US continued to rise.
Prime Terminal data reveals that the odds for the October meeting are 26%, down from 40% a day ago, and that for December they stand near 92%.
At the same time, US Retail Sales in September dipped to 0.8% MoM, down from 1.3% but exceeded the 0.3% forecast, boosted by the increase in the average ticket at petrol stations.
Meanwhile, the labour market remains strong as jobless claims for the week ending October 10 dipped below estimates of 200K, coming in at 199K.
Given the backdrop, the US Dollar Index (DXY), which measures the performance of the American currency against six other currencies, is down 0.51% and clings to the 102.00 figure.
Meanwhile, Cleveland Fed President Beth Hammack was hawkish, stating that businesses are seeing significant input-cost price pressures and that “financial conditions do not appear restrictive.”
Ahead, Investors are watching for Fed Chair Kevin Warsh’s remarks at the IMF’s annual meeting for clues ahead of this month's Fed meeting.
Mexico’s economic schedule is scarce; the Greenback in control
In the meantime, the lack of economic data from Mexico keeps investors leaning into US Dollar dynamics, geopolitics, and market mood.
Regarding geopolitics, hostilities between the Houthis and Saudi Arabia continued, while the US and Iran each claimed that they have control over the Strait of Hormuz. Worth noting that Israeli PM Netanyahu reportedly talked with the US Secretary of State Marco Rubio, saying that if Iran doesn’t come to its senses, military action is a realistic scenario.
USD/MXN Price Forecast: Technical outlook
In the daily chart, USD/MXN trades at 18.4282. The pair holds well above the latest simple moving average triple at 17.3967, keeping the broader tone bullish after the recent breakout. Price also stands above the prior downward resistance trend-line region last tested near 18.1200, suggesting that what had been capping advances now acts as underlying demand. The Relative Strength Index (14) at 70.1009 hovers just above the neutral band and below extreme overbought territory, hinting that bullish momentum is still constructive but may be slowing after the sharp appreciation.
On the downside, initial support emerges around the former trend-line area near 18.1200, followed by the clustered simple moving averages at 17.3967, which reinforce the medium-term floor. A deeper pullback would expose horizontal support at 16.8866, the recent base of the move. With no immediate technical resistance overhead in this dataset, upside progress will likely be governed by momentum dynamics and potential profit-taking rather than clearly defined chart 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.
