USD/MXN retakes 18.60 as carry trade unwinding weighs on the Mexican Peso

A recovery from 18.54 takes USD/MXN to 18.68, up 0.60%.
The Peso's appeal for carry trades is at risk as Mexico's interest rate advantage narrows.
Ahead of Warsh's press conference, the probability of a December Fed rate hike stands at 82%.

Pressure from the unwinding of the “carry trade” has reversed the Mexican Peso's direction, leaving it 0.60% weaker against the US Dollar. The Dollar, meanwhile, is gaining against the six-currency basket tracked by the US Dollar Index (DXY). With high inflation leaving most major central banks poised to raise interest rates, the emerging-market currency is under strain. Having recovered from the day's low of 18.54, USD/MXN is trading at 18.68.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Can the Peso withstand a narrowing US-Mexico rate gap and Fed tightening expectations as Dollar demand grows?

The gap between US and Mexican interest rates looks set to shrink further. In September, a 25 bps increase by the Federal Reserve took rates to 3.75%-4%, whereas the Bank of Mexico (Banxico) left its rates unchanged.

Local economists in Mexico speculate that Banxico will leave rates untouched for the remainder of this year and throughout 2027. Expectations for the Fed point in the opposite direction: at least one additional rate increase this year, followed by 43 basis points of tightening next year.

Mexico's latest trade figures, meanwhile, showed a September surplus of $1.069 billion, compared with $3.489 billion in August.

Political turmoil has also engulfed the National Electoral Institute, the body that organises Mexico's elections. Following allegations of corruption, its former president, Guadalupe Taddei, stepped down on Monday. Mexican President Claudia Sheinbaum backed the decision.

Next year's mid-term elections are also in focus, with Mexico's Chamber of Deputies due for renewal on 6 June 2027.

A busy US economic calendar delivered stronger-than-forecast October Consumer Confidence from the Conference Board (CB), with the reading rising to 91.7 from 82.2. Growth in Durable Goods Orders accelerated to 1.8% from September's 0.1%. By contrast, ADP Employment Change registered 16.8K, falling short of the preceding 17.5K reading.

Wednesday's Fed policy announcement is now the key focus. While money markets are pricing in unchanged rates at that meeting, they assign an 82% probability to a December hike. Investors will then turn to Fed Chair Kevin Warsh's press conference for indications of the future interest rate path.

USD/MXN Price Forecast: Can the technical uptrend continue?

Chart Analysis USD/MXN — USD/MXN on the daily chart

A clearly bullish bias remains evident on the USD/MXN daily chart as the pair extends its rise to 18.6816, comfortably above the 50/100/200-day simple moving average (SMA) cluster near 17.64. Prices are now pushing into an area previously marked by descending trend-line resistance drawn from the 21.08 high. At 68.9, the Relative Strength Index (14) sits just short of overbought territory. This points to robust, though stretched, upside momentum rather than an immediate signal of reversal.

The SMA cluster near 17.64 offers the first support on a decline, followed by the more distant horizontal support at 16.89. Buying interest is likely to emerge on dips provided spot prices remain above these underlying demand zones. A fresh reaction to the descending trend-line resistance overhead, meanwhile, would suggest consolidation rather than a lasting top.

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

Mexican Peso: Frequently asked questions

Which major factors influence the Mexican Peso?

Among Latin American currencies, the Mexican Peso (MXN) records the highest trading activity. Broadly, its value reflects Mexico's economic performance, central bank policy, foreign investment inflows and remittances from Mexicans living overseas, especially in the United States. Geopolitical developments can influence MXN as well. One example is nearshoring, whereby some companies move manufacturing operations and supply chains closer to their home countries. This is viewed as a potential driver for the Peso because Mexico is regarded as a major manufacturing hub in the American continent. Oil prices are another influence on MXN, given Mexico's position as a major exporter of the commodity.

How can Banxico's policy decisions affect the Mexican Peso?

Keeping inflation low and stable is the primary aim of Mexico's central bank, Banxico. It seeks inflation at or near 3%, the midpoint of its 2% to 4% tolerance band, and sets interest rates accordingly. If inflation becomes too high, Banxico attempts to contain it through higher rates. This raises borrowing costs for households and businesses, dampening demand and cooling the wider economy. For the Mexican Peso (MXN), higher rates are usually supportive: the resulting increase in yields makes Mexico more attractive to investors. Lower rates, by contrast, generally put pressure on MXN.

What role do economic releases play in Mexican Peso valuations?

The Mexican Peso (MXN) can respond to macroeconomic releases, which provide important evidence of the economy's health. Strong growth, low unemployment and high confidence underpin a robust Mexican economy and support MXN. Such conditions draw in additional foreign investment and may also prompt the Bank of Mexico (Banxico) to raise interest rates, especially when economic strength is accompanied by high inflation. Weak economic readings, in contrast, are likely to weigh on MXN.

How does the Mexican Peso respond to shifts in risk sentiment?

Risk-on conditions generally favour the Mexican Peso (MXN), an emerging-market currency. When investors judge wider market risks to be low, they are more willing to take on higher-risk investments. During market turmoil or periods of economic uncertainty, the reverse tends to occur: investors sell riskier assets and move towards more stable safe havens, typically weakening MXN.