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Mexican Peso slides to April lows as Banxico shrugs off Fed gap

  • USD/MXN surges above 17.70 as Peso losses accelerate.
  • Banxico says policy need not mechanically track Fed adjustments.
  • Hawkish Fed rhetoric reinforces the US Dollar advantage after strong jobs data.

The Mexican Peso (MXN) extends its losses against the US Dollar (USD) on Thursday after the Bank of Mexico (Banxico) held the benchmark interest rate unchanged at 6.50%, disregarding the interest rate differential as a primary factor in setting monetary policy. The USD/MXN pair rallies more than 1%, trading at 17.75, its highest level since late April.

USD/MXN jumps as Banxico stresses independent policy path

For the third time, Banxico held interest rates unchanged, unanimously. In its monetary policy statement, the central bank said that it “will make its decisions considering the ongoing disinflation process and the expected behavior of its determinants,” which also includes the USD/MXN exchange rate.

Mexico’s central bank said that monetary policy “would not have to react mechanically to the anticipated adjustments to the Fed funds rate.” Banxico’s inflation projections indicate that headline and core inflation will converge toward its 3% goal by the fourth quarter of 2027.

Earlier, Mexican core inflation for the first half of September rose from 0.08% to 0.17% MoM, beneath forecasts of 0.2%. Headline inflation for the same period rose from 0.1% to 0.33%, exceeding forecasts of 0.26%.

Across the northern border, hawkish Fed speakers led by Cleveland Fed Beth Hammack, Philadelphia Fed Anna Paulson, and New York Fed John Williams increased the chances of a rate hike by the Fed at the October 28 meeting.

Data-wise, US jobless claims for the week ending September 19 came at 197K, below the previous week's reading of 198K and forecasts of 201K.

USD/MXN Price Forecast: Technical outlook

Chart Analysis USD/MXN
USD/MXN daily chart

In the daily chart, USD/MXN trades at 17.7243. The pair holds well above the latest reading of the 50/100/200-day simple moving averages (SMA) cluster at 17.1647, keeping the near-term bias bullish as price extends further away from its underlying trend base. However, the Relative Strength Index (14) at 79.67 shows overbought conditions, hinting that while upside momentum is strong, the rally is becoming stretched against the backdrop of the overarching downward resistance trend lines that still cap the broader structure.

On the downside, initial support is seen at the SMA cluster around 17.16, ahead of stronger horizontal demand at 16.89, where previous lows created a structural floor. On the topside, the pair would face the next significant hurdles at the descending resistance trend lines drawn from the 18.17 and 21.08 cycle highs, which together outline the medium-term bearish channel and could limit further gains unless decisively broken.

(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.

Author

Christian Borjon Valencia

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

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