Mexican Peso softens as Middle East risks boosts the US Dollar
- USD/MXN reclaims 17.00 despite softer US inflation data.
- Middle East uncertainty weighs on Peso as truce deadline ends.
- Banxico minutes and Retail Sales could guide next move.
The Mexican Peso weakens against the US Dollar on Monday, with USD/MXN reclaiming the 17.00 level, even though the latest US inflation and Retail Sales data disappointed investors. The USD/MXN trades at 17.03, after hitting a weekly low of 16.99.
USD/MXN eases despite softer US data as traders await Banxico minutes
Last week’s US data was softer than expected, prompting investors to trim their hawkish bets that the Fed might raise rates at the September meeting. The Consumer Price Index (CPI) for July expanded by 3.4% YoY, down from 3.5% in July, while the Producer Price Index (PPI) slowed from 5.5% to 4.7% for the same period.
Both reports revealed progress in the disinflation process, while Friday’s Retail Sales report showed that consumer spending is easing, with sales falling from 0.2% to -0.6%.
The data pushed the US Dollar Index (DXY) to trade near two-month lows, before recovering some ground. The DXY, which measures the performance of the Greenback against six currencies, is down 0.05% at 99.59.
Uncertainty about the war in the Middle East could have weighed on the Mexican currency. US President Donald Trump said that he is not in a hurry to end the war with Iran, though he added that they would not seek an extension to the 60-day truce agreed in the Memorandum of Understanding (MoU), which ends on August 17.
Across the southern border, the Mexican economic docket remained absent last week, but in August 20, the Bank of Mexico – also known as Banxico- is expected to release its latest meeting minutes, which are expected to show board members' stances on the economy and monetary policy.
The docket will resume on Friday, August 21, with traders awaiting Mexican Retail Sales for June, which are expected to surge from 1.6% to 3.1% YoY due to the World Cup.
USD/MXN Price Forecast: Technical Outlook
In the daily chart, USD/MXN trades at 17.0331. The pair retains a bearish near-term bias as spot holds well below the clustered simple moving averages around 17.37 and beneath both descending trend-line resistances, suggesting rallies remain capped within a broader downside structure. The Relative Strength Index (14) sits just under the 30 line, hinting at oversold conditions but not yet showing a decisive recovery in momentum.
On the topside, initial resistance is defined by the triple simple moving average area near 17.37, with the two descending resistance trend lines reinforcing a broader supply zone above that region. As long as price remains under these caps, the path of least resistance stays to the downside, and any bounce toward 17.37 would likely be viewed as corrective within the prevailing bearish phase.
(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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