Mexican Peso recovers but faces weekly loss on Iran risk
- USD/MXN falls to 18.66, but Peso faces weekly losses exceeding 1%.
- Mexico's economic activity grows 3.3% annually, exceeding previous readings.
- December Fed hike odds reach 78% ahead of FOMC and PCE releases.
The Mexican Peso appreciates by about 0.32% on the day against the US Dollar, but it remains poised to end the week with losses of more than 1% even as risk appetite soured amid a potential escalation of the Middle East conflict. The USD/MXN trades at 18.66, after hitting 18.80.
USD/MXN retreats as resilient Mexican economic activity offsets geopolitical uncertainty ahead of Fed decision
The US-Iran conflict continues to escalate as US President Donald Trump said that “we may do another operation against Iran.” Meanwhile, the IRGC is attacking vessels using “illegal routes” in the Strait of Hormuz, while Houthi-Saudi exchanges of fire further deteriorated market sentiment.
In Mexico, the economic docket revealed that economic activity rose 0.6% MoM in August, as measured by the Global Economic Activity Indicator (IGAE). Annually, the print increased by 3.3%, with figures usually released ahead of Gross Domestic Product (GDP) data.
In the US, the University of Michigan Consumer Sentiment Index fell slightly to a five-month low of 48 in October, from 48.1, as energy prices rose and consumers expected the Fed to keep rates higher for longer. Inflation expectations were unchanged but remained above the Fed’s 2% target: 4.7% over the next 12 months and 3.5% over five years.
US S&P Global PMIs showed manufacturing activity rising from 55.9 to 56 and services easing from 58.8 to 57.9, in line with analyst expectations.
Last week, US inflation data was hot on both the producer and consumer fronts, paving the way for further tightening by the Federal Reserve. Nevertheless, investors took a rate hike off the table for next week’s Fed meeting. But for December, the chances are 78%, according to Prime Terminal.
Next week, the US economic docket will feature the Federal Reserve’s monetary policy meeting, followed by the release of the Fed’s favourite inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index.
In Mexico, the schedule will feature the release of GDP figures on Friday, October 30th.
USD/MXN Price Forecast: Technical outlook
In the daily chart, USD/MXN trades at 18.6532, extending its advance well above the clustered simple moving averages around 17.5753 and the former downtrend resistance now turned support near 14.8414. This positioning keeps the near-term bias bullish, with the pair holding comfortably over the horizontal floor at 16.8866. The Relative Strength Index (14) at 70.48 flirts with overbought territory, suggesting that while upside pressure remains dominant, the rally could be prone to bouts of consolidation or shallow corrective pullbacks.
On the downside, initial demand is seen at the grouped simple moving averages around 17.58, which reinforce the broader bullish structure, ahead of the horizontal support level at 16.89. Deeper setbacks would still find protection from the broken downward trend line anchored near 14.84. With no meaningful resistance levels immediately overhead in the current framework, price action may continue to probe higher levels as long as USD/MXN holds above the 17.58 support zone.
(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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