- USD/MXN could limit its downside amid rising US Treasury yields.
- The Mexican Peso may struggle as the Banxico may reduce borrowing costs at Thursday’s meeting.
- CME FedWatch tool suggests 67.5% odds of a 50-basis point Fed rate cut in September, up from 13.2% last week.
USD/MXN trades around 19.30 during the early European hours on Wednesday after breaking its four-day winning streak. The Mexican Peso (MXN) gains ground due to possible improved risk appetite. However, the downside of the USD/MXN pair could be limited as US Dollar (USD) advances amid rising Treasury yields.
Mexico’s Auto Exports fell by 1.6% year-on-year to 271,496 units in July, breaking a streak of twenty consecutive months of growth. This decline highlights the ongoing economic slowdown, which, along with lower inflation readings, might prompt the Bank of Mexico (Banxico) to consider lowering borrowing costs at its upcoming meeting. Traders will likely observe the inflation data before the policy decision on Thursday.
The US Dollar Index (DXY), which measures the value of the US Dollar against its six major peers, trades around 103.20 with 2-year and 10-year yields on US Treasury bonds standing at 4.00% and 3.90%, respectively, at the time of writing.
However, the upside of the USD/MXN could be retrained due to increasing odds of a relatively higher rate cut starting in September after the weaker US labor data for July raised the fear of a looming US recession. According to the CME FedWatch tool, there is now a 67.5% probability of a 50-basis point (bps) interest rate cut by the US Federal Reserve (Fed) in September, up from 13.2% a week earlier.
According to Reuters, Federal Reserve Bank of San Francisco President Mary Daly noted on Monday that “risks to the Fed's mandates are becoming more balanced and that there is openness to the possibility of cutting rates in upcoming meetings.” Additionally, Chicago Fed President Austan Goolsbee stated that the central bank is prepared to act if economic or financial conditions worsen.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD corrects sharply toward 1.0950 ahead of US NFP, Powell
EUR/USD is extending its correction toward 1.0950 in the European session on Friday. The US Dollar has come up for air after the trade war and recession fears-led sell-off, weighing on the pair. Traders look to the US NFP report and Fed Chair Powell's speech for fresh directives.
GBP/USD remains heavy near 1.3000, US NFP data awaited
GBP/USD is battling 1.3000, under heavy selling pressure in European trading on Friday. Traders resort to profit-taking on their US Dollar short positiions, re-adjusting ahead of the critical US Nonfarm Payrolls data and Fed Chair Powell speech.
Gold price sticks to negative bias around $3,100; bears seem non-committed ahead of US NFP report
Gold price meets with a fresh supply on Friday, though the downside potential seems limited. Trump’s tariffs-inspired risk-off mood might continue to act as a tailwind for the precious metal. Fed rate cut bets weigh on the USD and also contribute to limiting losses for the XAU/USD pair.
XRP finds new lifeline as Coinbase Derivatives eyes XRP futures on April 21
Ripple price reclaims the $2.00 support level and trades at $2.06 at the time of writing on Friday in the wake of a drawdown to $1.96 during Thursday’s session. Traders continue to exercise caution after Trump’s tariffs hit 100 countries, as per a CryptoQuant report.
Trump’s “Liberation Day” tariffs on the way
United States (US) President Donald Trump’s self-styled “Liberation Day” has finally arrived. After four straight failures to kick off Donald Trump’s “day one” tariffs that were supposed to be implemented when President Trump assumed office 72 days ago, Trump’s team is slated to finally unveil a sweeping, lopsided package of “reciprocal” tariffs.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.