Mexican Peso: Is Downside Against US Dollar Likely to Be Limited? – Commerzbank

The Mexican Peso’s (MXN) sharp slide against the US Dollar (USD) appears excessive, according to Commerzbank FX analyst Michael Pfister’s assessment of the recent move. He identifies growing risk aversion, uncertainty over USMCA trade arrangements and Banxico’s dovish policy stance as the main factors behind the decline. Commerzbank projects a gradual fall in USD/MXN from 17.20 in December 2026 to 16.50 by December 2027.

Why Are MXN-Specific Risks Fuelling the Sharp Sell-Off?

"However, since the beginning of September, sentiment has shifted abruptly. Instead of trading below 17 USD/MXN, the exchange rate is now trading above 18.5, representing a depreciation of over 9%. At first glance, this could be attributed to general US dollar strength or increased risk aversion."

"The minutes from the last meeting made it clear that Banxico is open to further interest rate cuts, contrary to market expectations, and that Fed rate hikes do not have to be mechanically mirrored. This amounts to a very dovish stance, which is causing the peso’s carry advantage to decline further."

"Consequently, the authorities are unlikely to stand by and watch indefinitely, but will at some point signal their readiness to tighten monetary policy, which would support the peso quickly."

"The outlook is more challenging when it comes to two other potential contributing factors. The USMCA negotiations do not currently appear to be a top priority for the US, and it is quite possible that no agreement will be reached by the end of the year, or even until 2027. A weaker US dollar would also help, but this is currently difficult to predict given the geopolitical risks."

"However, there is a glimmer of hope: the peso’s weakness is likely to be limited as most of the risks are probably already factored in by now."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)