Mexican Peso extends rally as risk appetite offsets Fed hawkishness
- Mexican Peso strengthens despite Fed officials warning of stalled disinflation.
- Mexico’s Retail Sales and Q4 GDP are expected to show an economic slowdown.
- Banxico minutes could offer clues on potential 50 bps rate cuts.
The Mexican Peso (MXN) rallied for the sixth consecutive day amid an upbeat market mood, which keeps risk-sensitive currencies appreciating despite some Federal Reserve (Fed) officials turning slightly hawkish. At the time of writing, USD/MXN trades at 20.22, down 0.27%.
Mexico’s economic docket remained absent earlier in the week, though Retail Sales data and Banco de Mexico (Banxico) minutes of its last meeting could drive price action on Thursday. Towards the end of the week, Gross Domestic Product (GDP) figures would be of interest to USD/MXN traders.
Retail Sales in December are expected to show Mexico’s economy slowdown. The final GDP reading for Q4 2024 is expected to show a contraction on a quarterly basis and is foreseen to expand annually.
Meanwhile, investors await Banxico’s minutes, which will help them gather clues about the intention of reducing rates at a 50 basis point (bps) pace during the year.
In other news, Marcelo Ebrard, Mexico’s Secretary of Economy, revealed that he would meet this Thursday with his counterparts from the United States (US) government in Washington to discuss matters regarding tariffs and bilateral economic integration.
In the US, Federal Reserve officials turned cautious after the disinflation process stalled, as the Consumer Price Index (CPI) had risen for five straight months. San Francisco Fed President Mary Daly said during a conference in Arizona: “Policy needs to remain restrictive until… I see that we are really continuing to make progress on inflation.”
Daily digest market movers: Mexican Peso surges amid Fed steady stance
- Monetary policy divergence between Banxico and the Fed favors further USD/MXN upside. The Fed is expected to keep rates steady, while Banxico is foreseen to cut rates again by 50 basis points in the next meeting.
- Fed Governor Christopher Waller said that his "baseline" view was that US President Donald Trump's new trade restrictions would have only a modest impact on prices. Philadelphia Fed President Patrick Harker supported a steady interest-rate policy stance as he acknowledged that inflation has remained elevated and persistent in recent months.
- The US Dollar Index (DXY), which tracks the buck's performance against a basket of currencies, edges up 0.29%, at 107.04, usually a tailwind for USD/MXN.
- According to the December 2025 fed funds interest rate futures contract, the swaps market suggests that the Fed will reduce rates by 39 basis points towards year-end.
- Trade disputes between the US and Mexico remain in the boiler room. Although the countries found common ground previously, USD/MXN traders should know that there is a 30-day pause and that tensions could arise toward the end of February.
USD/MXN technical outlook: Mexican Peso is steady as USD/MXN is below 50-day SMA
At the time of writing, the USD/MXN pair is testing the 100-day Simple Moving Average (SMA) at 20.24, which, if decisively broken with a daily close below the latter, could pave the way to challenge the 20.00 psychological figure. Although the Relative Strength Index (RSI) remains bearish, its slope is flat, meaning that neither sellers nor buyers are in control.
On the other hand, if USD/MXN climbs past the 50-day SMA at 20.45, the exotic pair could rally to 20.50, followed by the January 17 daily high at 20.93.
Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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