Mexican Peso approaches 18.75 as Iran risks and AI sell-off weigh on sentiment

• USD/MXN rises to 18.70 as demand for safe havens underpins Dollar.
• At 3.62%, Mexico's mid-month inflation picks up more than markets expected.
• Peso carry trades face risks from potential Fed tightening and a prolonged Banxico pause.

A 0.16% decline left the Mexican Peso weaker for a second consecutive day as the US Dollar remained supported by mounting Middle East tensions and investor concerns over mega-cap technology companies issuing more debt to fund the AI buildout. USD/MXN stands at 18.72, a gain of 0.20%.

US Dollar strengthens as Middle East tensions intensify

An escalation in the US-Iran conflict dampened sentiment, as Washington and Jerusalem prepared plans to renew attacks on Iran after the US elections. Exchanges of attacks between Saudi Arabia and the Houthis sent energy prices higher, in turn lending support to the greenback.

Mexico-US interest rate gap supports further USD/MXN gains

Expectations that the Federal Reserve will raise rates by 25 bps towards the end of 2026 helped USD/MXN resume its upward trend. By contrast, the Bank of Mexico (Banxico) is expected to leave rates on hold in 2026 and throughout 2027.

Inflation in Mexico accelerated to 3.62% from 3.42% in the first half of October, above the 3.60% forecast, according to national statistics agency INEGI. Over the same period, core inflation eased to 3.78% from 3.79%, but remained above the forecast of 3.70%. This measure excludes volatile components such as food and energy.

Initial Jobless Claims in the US remained close to 200k, pointing to an economy characterised by limited hiring and few redundancies. Corporate earnings also remained in the spotlight. Following their results, both Tesla and Meta declined, undermining wider risk appetite and fuelling a fresh sell-off in AI stocks.

Stronger-than-expected US consumer and producer inflation figures in the previous week reinforced the case for the Federal Reserve to raise interest rates at least once towards the end of the year.

Mexico’s October Retail Sales and Mid-Month Inflation releases are next in focus for investors. The US calendar includes 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: Bullish technical bias persists

At 18.7197 on the daily chart, USD/MXN retains a distinctly bullish bias, trading well above the 50-, 100- and 200-day simple moving averages (SMAs), which cluster around 17.54. The upward breakout prolongs the rally from the mid-16.00s. Meanwhile, a Relative Strength Index (14) reading of 73.87 signals overbought conditions: upward momentum remains firm, albeit stretched.

The longer-term descending trend line drawn from 21.0808 provides the next significant resistance. It caps the broader price structure and could temper further advances. Initial support lies around 17.54, where the 50/100/200-day SMAs converge, followed by horizontal support near 16.89. Buyers would be expected to return around that level should a deeper correction develop.

(The technical analysis of this story was written with the help of an AI tool. Know more.)