Mexican Peso rebounds but remains on course for weekly loss amid Iran risk

• USD/MXN retreats to 18.66 as Peso remains on course for weekly losses of more than 1%.
• Annual growth in Mexico's economic activity reaches 3.3%, surpassing earlier readings.
• Fed rate hike probability for December rises to 78% before FOMC decision and PCE data.

A daily gain of about 0.32% against the US Dollar leaves the Mexican Peso still on track for a weekly decline of more than 1%. The currency's advance comes despite a deterioration in risk appetite as markets face a possible escalation of the Middle East conflict. Having touched 18.80, USD/MXN is trading at 18.66.

USD/MXN eases as firm Mexican activity counters geopolitical uncertainty before Fed decision

Further escalation in the US-Iran conflict followed US President Donald Trump's statement that “we may do another operation against Iran.” Sentiment also weakened as the IRGC attacked vessels taking “illegal routes” through the Strait of Hormuz and the Houthis and Saudi Arabia exchanged fire.

August economic activity in Mexico expanded by 0.6% month on month, according to the Global Economic Activity Indicator (IGAE). The annual increase stood at 3.3%. These figures are typically published before Gross Domestic Product (GDP) data.

October's University of Michigan Consumer Sentiment Index slipped to 48 from 48.1, a five-month low, against a backdrop of rising energy prices and consumer expectations that the Fed would leave rates higher for longer. Inflation expectations held steady at 4.7% for the next 12 months and 3.5% over five years, both above the Fed's 2% target.

According to the US S&P Global PMIs, manufacturing activity edged up to 56 from 55.9, while services moderated to 57.9 from 58.8, matching analysts' expectations.

Elevated US producer and consumer inflation readings last week set the stage for additional Federal Reserve tightening. Investors nonetheless ruled out a rate increase at next week's Fed meeting, although Prime Terminal puts the probability of a December hike at 78%.

The Federal Reserve's monetary policy meeting takes centre stage on next week's US calendar. It will be followed by the Core Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation measure.

Mexico's GDP figures are due on Friday, 30^th October.

USD/MXN Price Forecast: Bulls retain the technical advantage

Trading at 18.6532 on the daily chart, USD/MXN is extending its gains well above the cluster of simple moving averages around 17.5753 and former downtrend resistance near 14.8414, which now acts as support. A comfortable margin above the horizontal floor at 16.8866 also sustains the near-term bullish bias. At 70.48, the Relative Strength Index (14) is close to overbought territory. Upward pressure therefore remains dominant, although the rally may be interrupted by consolidation or modest corrective pullbacks.

The first area of demand on a decline lies around 17.58, where the clustered simple moving averages underpin the broader bullish structure. Horizontal support at 16.89 comes next, while a deeper correction would encounter further support at the breached downward trend line near 14.84. The current technical set-up shows no significant resistance immediately above the market, leaving scope for price action to test higher levels provided USD/MXN stays above the 17.58 support zone.

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