Sentiment weakens on Iran risks and AI sell-off as Mexican Peso approaches 18.75

• Safe-haven buying lifts Dollar, taking USD/MXN up to 18.70.
• At 3.62%, Mexico's mid-month inflation picks up beyond market forecasts.
• Peso carry trades face risks from potential Fed tightening and a prolonged Banxico pause.

Risk aversion kept the US Dollar firm, leaving the Mexican Peso down 0.16% for a second consecutive day. Investors were unsettled by mounting Middle East tensions and concerns over mega tech companies taking on more debt to fund the AI buildout. USD/MXN is trading 0.20% higher at 18.72.

How are Middle East tensions supporting the US Dollar?

Risk appetite weakened as the US-Iran conflict intensified and Washington and Jerusalem prepared plans for renewed attacks on Iran after the US elections. An exchange of attacks between Saudi Arabia and the Houthis sent energy prices sharply higher, in turn strengthening the greenback.

Can the Mexico-US interest rate gap drive USD/MXN higher?

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

Figures from national statistics agency INEGI showed that Mexico’s inflation accelerated from 3.42% to 3.62% in the first half of October, surpassing the 3.60% forecast. Over the same period, core inflation, which excludes volatile components such as food and energy, edged down from 3.79% to 3.78%, against expectations of 3.70%.

With Initial Jobless Claims holding close to 200k, the US economy continued to show limited hiring and firing. Corporate earnings also remained in focus. Post-results declines in both Tesla and Meta dampened broader risk appetite and fuelled a fresh sell-off in AI stocks.

Stronger-than-expected US consumer and producer inflation readings in the previous week reinforced the case for at least one Federal Reserve interest rate increase towards the end of the year.

Mexico’s October Retail Sales and Mid-Month Inflation releases are next on investors’ radar. The US calendar includes jobless claims for the week ending October 17, S&P Global Flash PMIs and the final October Consumer Sentiment reading from the University of Michigan.

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

A distinctly bullish bias remains evident on the daily chart, with USD/MXN at 18.7197 and comfortably above the 50-, 100- and 200-day simple moving averages (SMAs), which converge around 17.54. The upward breakout builds on the rally from the mid-16.00s. Meanwhile, the Relative Strength Index (14) reads 73.87, signalling overbought conditions: upward momentum is still strong, although stretched.

Further gains could encounter resistance at the longer-term descending trend line drawn from 21.0808, which limits the broader structure and may slow the advance. If the pair retreats, the first support area lies near 17.54 at the 50/100/200-day SMAs. Below this is horizontal support around 16.89, where buyers would be expected to return in the event of a deeper correction.

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