Mexican Peso dives on solid US data, despite high inflation
- USD/MXN jumps to 18.14 after tech selloff triggers risk aversion.
- Hawkish Fed talk and strong US jobs data weigh on the Mexican Peso.
- Banxico minutes reveal upside inflation risks ahead of US sentiment.
The Mexican Peso depreciated by about 0.91% against the US Dollar on Thursday amid positive US data, while Banxico’s last meeting minutes indicated inflation edging higher, a trend confirmed by the September print. The USD/MXN trades at 18.14 after reaching a low of 17.95.
US equities weighed on the Mexican Peso
The emerging-market currency is weighed down by a sudden shift in market mood, as the Financial Times (FT) reports that OpenAI's annual revenue is $20 billion lower than previously signalled. The news weighed on tech stocks and sent US equities tumbling amid traders' fears that the rally may be questionable.
Before that news, global equities were underpinned by US President Trump's post on Truth Social, saying that they held productive discussions with Iran and that there wouldn’t be attacks on Iran, before the midterm elections.
In the FX markets, the Greenback underperforms against most G7 currencies, but not against the Peso. The US Dollar Index (DXY), which measures the buck’s value against six currencies, is down 0.07% at 102.17.
Would Banxico raise rates as headline inflation approaches 3.50%?
Headline inflation in Mexico rose from 3.26% to 3.45% YoY in September, below estimates of 3.47%. Core figures for the same period decreased from 3.88% to 3.75%, below forecasts of 3.8%.
The doubt lingers over whether the Bank of Mexico (Banxico) could make a U-turn and raise rates if inflation surpasses the 4% threshold in the future. Nonetheless, the minutes revealed that policymakers “projected inflation path over the forecast horizon remains skewed to the upside.”
Fed’s Musalem remains hawkish; US jobs market solid
In the US, St. Louis Fed President Alberto Musalem was hawkish, saying that inflation remains above 2% and that further tightening is needed. He added that contacts are about inflation rather than jobs.
The latest Fed minutes revealed that all members backed September’s rate hike and that the board sees the labour market as “stable and generally viewed … as close to maximum employment.”
Data from the US showed that Initial Jobless Claims dipped below estimates, indicating labour market strength.
Ahead, USD/MXN traders will eye the release of the University of Michigan Consumer Sentiment print, as the Mexican economic schedule is absent.
USD/MXN Price Forecast: Technical outlook
In the daily chart, USD/MXN trades at 18.1986, extending its recovery above the clustered simple moving averages (SMA) around 17.2852 and maintaining a clear bullish near-term bias. Price action is now well supported by that SMA floor and the prior horizontal base at 16.8866, while the Relative Strength Index (14) at 72.18 shows the pair in overbought territory, hinting that upside momentum is stretched but not yet reversing.
On the downside, initial support is seen at the triple SMA area near 17.29, ahead of the horizontal support level at 16.89 which marks the latest significant reaction low. As long as USD/MXN holds above these supports, dips are likely to attract buying interest, with a period of consolidation or a modest pullback favored to cool the overbought daily RSI before the broader uptrend can sustainably extend.
(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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