Mexican Peso drops as US growth, hot inflation rekindles Fed hike bets
- USD/MXN jumps over 1.20% to 18.86, approaching the psychological 19.00 level.
- US GDP expands 3.4%, while Core PCE inflation accelerates to 3.1%.
- Banxico's Borja defends 6.50% rates as traders await Mexico's GDP.
The Mexican Peso is poised to depreciate over 1.20% against the US Dollar on Thursday, with the USD/MXN trading at 18.86. Expectations that the Federal Reserve would raise rates once more in 2026, along with US data supporting that view, weighed on the emerging market currency, which is poised to end the week with losses.
USD/MXN surges towards 19.00 as resilient US growth, high inflation pressures the Peso ahead of Mexico's GDP
On Wednesday, the Federal Reserve left rates unchanged, with Fed Chair Kevin Warsh remaining muted on forward guidance. Nevertheless, he revealed that there would be seven monetary policy decisions in 2027 and six in 2028.
The USD/MXN dipped near 18.60 on the decision and following Warsh remarks, but Thursday’s data triggered a recovery in the exotic pair.
Inflation in the US, as measured by the Core PCE, rose 3.1% in September, as expected, up from 3% in the prior month. Meanwhile, the US economy grew 3.4% YoY, above Q2 2026's 2.2% print and exceeding forecasts of 3.2%. All this data added up to a strong jobs report, as jobless claims for the week ending October 24 dipped from 195K to 194K, below forecasts of a rise to 199K.
Given the backdrop, money markets see a 76% chance the Fed will raise rates, well below the 84% expected a day ago, a sign that investors are less confident the Fed will raise interest rates.
In Mexico, the docket was absent, but the Bank of Mexico (Banxico) Deputy Governor Galia Borja noted that interest rates at 6.50% is a “good monetary position,” as inflation continues to dip to Banxico’s 3% goal. Despite recognising that inflation is moving in that direction, Borja emphasised that “the job is not yet done.”
On Friday, Mexico’s economic schedule will feature Gross Domestic Product (GDP) for Q3 2026, with the economy expected to grow 0.7% QoQ and, on an annual basis, to rise from 2.1% to 2.5%, according to economists.
USD/MXN Price Forecast: Technical outlook
In the daily chart, USD/MXN trades at 18.8635, extending its bullish near-term bias as spot holds well above the triple simple moving average cluster around 17.7104. Price action is comfortably over the key structural floor at 16.8866, while the Relative Strength Index (14) near 71.7 pushes into overbought territory, hinting that the latest advance is stretched but still supported by firm underlying demand.
On the downside, initial support emerges at the grouped 50/100/200-day simple moving averages near 17.71, ahead of the more distant horizontal base at 16.89, where buyers would be expected to reassert control on deeper pullbacks. With no clearly defined resistance levels above the market in the current dataset, the pair remains in an uncharted topside phase, leaving any corrective phase likely driven first by overbought momentum rather than a well-established ceiling.
(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.
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