Mexican Peso holds 18.42 as Trump, Sheinbaum signal trade breakthrough
- USD/MXN holds at 18.42 as Peso traders await inflation figures.
- Trump and Sheinbaum signal that a trade deal is very close
- Narrowing US-Mexico rate differential threatens Peso's carry-trade advantage.
The Mexican Peso holds firm against the US Dollar on Tuesday, amid a light economic docket in Mexico, with traders eyeing the release of Mid-Month Inflation figures for October. In the United States, housing data disappointed investors, and geopolitics are driving price action since the beginning of the week. The USD/MXN trades at 18.42, unchanged.
USD/MXN steadies as renewed US-Mexico trade optimism offsets fading carry-trade appeal
The emerging market currency has held its own, even though the carry trade has begun to fade since mid-September, amid speculation that the interest rate differential between the US and Mexico will narrow from 250 basis points to 200 by the end of the year.
Money markets had priced in 23 basis points of Fed tightening, which would bring the Fed funds rate into the 4%-4.25% range. Meanwhile, the Bank of Mexico is projected to keep the monetary policy unchanged in 2026 and 2027, holding its main interest rate reference at 6.50%.
Mexico’s President Claudia Sheinbaum commented that a trade deal with the US is “very close”, with some issues left to be resolved. Her counterpart, the US President Donald Trump, said that a “great trade deal with Mexico is very close.
This news is positive for Mexico, as the US is the largest trading partner, and a swift resolution of trade and tariff issues with Washington is supportive of the Mexican Peso. This news comes after the Wall Street Journal (WSJ) revealed on October 15 that progress on tariffs and a trade deal had halted.
Ahead, Mexico’s docket will feature Retail Sales and October’s Mid-Month Inflation report.
U.S. Pending Home Sales plunged 7.3% in September. This week, investors will watch Initial Jobless Claims for the week ending October 17, S&P Global Flash PMIs, and the University of Michigan’s final October Consumer Sentiment reading.
USD/MXN Price Forecast: Technical outlook
In the daily chart, USD/MXN trades at 18.4272, extending its advance above the clustered simple moving averages around 17.4761 and preserving a bullish near-term bias. The pair has pushed decisively away from the 16.8866 horizontal floor and is approaching the broader downward resistance trend line drawn from the 21.0808 peak, suggesting that the recent breakout sequence remains intact. The Relative Strength Index (14) at 67.78 hovers just below overbought territory, hinting that bullish momentum is still strong but vulnerable to bouts of consolidation as price nudges into this longer-term resistance environment.
On the downside, immediate support is now seen at the Moving Average Triple (simple) near 17.48, where any pullback could find underlying demand before the more distant horizontal support at 16.89 comes into play. On the topside, the next important barrier is the descending resistance trend line originating at 21.08, which currently caps the broader recovery and would need to be decisively cleared to open the way for a more extended USD/MXN rally.
(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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