Mexican Peso defies Fed hike bets as Banxico signals longer pause

Mexican Peso recovers as USD/MXN retreats toward 18.60.
US Core CPI holds at 0.3% MoM, reinforcing Fed tightening expectations.
Banxico signals prolonged rate hold at 6.25% despite rising Mexican inflation.

The Mexican Peso (MXN) recovered some ground against the US Dollar (USD) on Wednesday after losing 0.45% in the previous week, following a US inflation report that was higher than expected, which increased the odds of further Federal Reserve (Fed) tightening. At the time of writing, the USD/MXN trades at 18.60, down 011%.

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USD/MXN retreats toward 18.60 despite strong Dollar demand

US inflation in October exceeded forecasts, but headline CPI dipped from 0.6% to 0.4% MoM. Core figures remained steady for the third straight month at 0.3% MoM, above economists' estimates of 0.2% and aligned with Fed Governor Christopher Waller prediction that if underlying inflation hit 0.3%, he could opt for a 50-basis-point rate hike.

After the report, money markets increased their bets that the Fed will raise rates 25 basis points in December, according to the CME FedWatch Tool. Banks like Deutsche Bank and Goldman Sachs see a quarter-percentage-point hike in December

Amid tightening expectations, the US Dollar Index (DXY), which tracks the performance of the buck against six currencies, is up 0.69% to 102.91, having previously hit an 18-month high of 102.96.

On Monday, Mexico’s National Statistics Agency, known as INEGI, revealed that October’s inflation rose from 3.45% to 3.75% YoY, above forecasts. Excluding volatile items, rose by 3.8% YoY, exceeding estimates of 3.78%. Both readings suggest that the Bank of Mexico's (Banxico) rate cut last week was unjustified, despite the Governing Board recognizing that inflation risks are tilted to the upside.

Banxico’s Governor Rodriguez Ceja commented that the board was considering cutting rates since October, she said in an interview with El Financiero. She added that after the cut, “maintaining the rate at its current level – 6.25% – for an extended period will support the convergence of inflation to the target and will be adequate to address external macroeconomic challenges.”

Ahead, the Mexican economic docket is quiet, with traders leaning on US dynamics. Across the northern border, the schedule will feature jobless claims, housing data, Fed speakers and producer inflation by the weekend.

USD/MXN Price Forecast: Technical outlook

Chart Analysis USD/MXN — USD/MXN daily chart

In the daily chart, USD/MXN trades at 18.60, maintaining a bullish near-term bias as spot holds well above the triple simple moving average (SMA) cluster, now sitting near 18.01. The reclaim and extension above this medium-term trend proxy suggest dips remain supported, while the Relative Strength Index (RSI) at 54 has eased from prior overbought extremes and now points to more balanced, but still constructive, momentum after the recent consolidation.

On the downside, the first support is located at the triple SMA area around 18.01, where a break would be needed to undermine the current positive structure and expose deeper losses. Below there, the next important floor emerges at the horizontal level of 16.89, which marks a more distant but notable demand zone; as long as price stays comfortably above these supports, the USD/MXN pair looks biased to extend higher once fresh resistance levels are established on the charts.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Mexican Peso FAQs

What key factors drive the Mexican Peso?

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.

How do decisions of the Banxico impact the Mexican Peso?

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.

How does economic data influence the value of the Mexican Peso?

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.

How does broader risk sentiment impact the Mexican Peso?

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.

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